South Africa enters economic deep freeze
Fin24

South Africa enters economic deep freeze

2014-06-11 06:00

Johannesburg - Winter arrived in South Africa this week, covering hills and highlands with snow in a fittingly chill metaphor for an economy beset by everything from labour unrest and flat-lining output to rising inflation and waning external confidence.

South Africa's problems are many and complex, but at their root is the collapse of the balance struck in the dying days of apartheid between the predominantly white world of business and the predominantly black one of organised labour.

The deal that underpinned the mechanics of the "new" South Africa until a 2009 recession saw strong unions, allied to the ruling African National Congress (ANC), delivering workplace stability in return for wage increases slightly above inflation.

Now, weak growth, ideological turf wars in the ANC, cynicism and neglect by union bosses and management, and fallout from events such as the police killing of 34 strikers at a platinum mine in 2012 have left that model in tatters.

"It's as bad as it's ever been - probably the lowest point of our labour relations," said Andrew Levy, a labour consultant at Andrew Levy Employment in Johannesburg.

"We've lost all sense of good-faith bargaining. The bargaining is in the utmost bad faith."

Recession fears

Front and centre is the longest and costliest strike in the 130-year history of South Africa's mines, a five-month walkout by 70 000 members of Amcu that triggered a first-quarter decline in national output.

The first GDP contraction since 2009 sparked a rare sense of urgency from President Jacob Zuma's new administration but efforts to end the strike failed again this week.

The local economy in Rustenburg, the 'platinum city' whose growth since the end of apartheid in 1994 has been likened to the Klondike gold rush, is collapsing with dramatic effects.

Nationwide business confidence slumped to its lowest since the start of the millennium in May, while consumer data such as vehicle sales have shown 10% year-on-year declines in the last two months.

Meanwhile, the increasingly militant Numsa metalworkers union, South Africa's largest, is threatening a strike that would hit auto production - 6% of the economy - and the construction of two huge and desperately needed power stations.

SA Reserve Bank governor Gill Marcus played down the threat of a full recession but was hardly sanguine about the outlook for an economy overtaken this year by Nigeria as Africa's largest.

"Even if a recession is avoided, it will be cold comfort if the growth rate is a weak positive number," she said on Tuesday.

"It behoves us all - government, business and labour - to rebuild the confidence and trust that is an imperative to change the negative trajectory that the economy is presently on."

Her deputy, Lesetja Kganyago, put it more bluntly last week.

"Monetary policy can help staunch the bleeding but it cannot heal the patient," he said.

Weak

On top of it all, a weak rand has pushed inflation above the top end of the central bank's 3% to 6% target band, just as ratings agencies Standard and Poor's and Fitch draw up their latest views on the economy and government finances.

Pretoria's credit rating is still two pips above investment grade, a consequence of sound fiscal management over the last 20 years, but most analysts are predicting downgrades.

In the short-term, the ANC is inoculated from fallout from the poor state of the economy thanks to the 62% majority it won in May's election.

But it knows that without strong growth it cannot afford the social and healthcare policies it wants to roll out to address the inequalities left by decades of white-minority rule.

The May elections also brought the ultra-leftist Economic Freedom Fighters, led by renegade ANC youth leader Julius Malema, into parliament - to the disdain of Zuma, who snubbed the EFF at the vote count in Pretoria.

However, it is Zuma who is showing the strain.

The 72-year-old was admitted to hospital on Saturday after being told by aides and the ANC's top brass that he needed to rest after the exertions of the election.

Quickly discharged after "routine" tests, he is nevertheless missing a cabinet meeting this week, allowing his deputy, respected unionist-turned-tycoon Cyril Ramaphosa, to preside.

If Zuma's energy levels are lagging, he is even less likely to push for fundamental changes - from executive pay to strike laws to a migrant labour system in the mines that has changed little since the end of apartheid.

"Zuma's style, right from the start, has been characterised as 'soft-in-the-middle', based primarily on not making decisions and satisfying different constituencies to keep the political balance," said Cape Town-based political analyst Nic Borain.

White monopoly capital

Zuma's strategy so far has been to talk vaguely of "radical socio-economic transformation" while pushing a National Development Plan (NDP) drawn up in his first term as a blue-print for reviving growth through infrastructure investment.

Even this relatively innocuous attempt to create jobs and make a dent in 25% unemployment has raised union hackles.

Outlining last week its reasons for a strike, the 220 000-strong Numsa dismissed the NDP in a tone notable for its belligerence, even by the standards of the Marxist sloganeering favoured by South Africa's unions.

Alongside references to "white monopoly capital", Numsa expressed "militant solidarity" with the platinum strikers, suggesting it could be readying its members for prolonged action in pursuit of a wage demand 2½ times the rate of inflation.

Its conclusion was stark: "It is a sacrifice they are ready to make, conscious of the fact that their united power can shake the bosses and halt production."

Comments
  • Terence Wessels - 2014-06-11 06:06

    Thanks you anc morons. Here comes the poverty you deserve for being so stupid. Enjoy.

      jungleboy - 2014-06-11 11:29

      South Africa has become the shining example of poor leadership. Nobody cant say they didn't see the iceberg ahead. Zuma runs this country like a kraal...what can one expect?

  • Marina Oosthuizen - 2014-06-11 06:59

    Seeing as USA and UK owns most of SA mines, why will they not pay up instead they have kept all profit for their stingy selves instead of sharing it honestly with South Africa and the mine workers. Typical for the rich countries to steal from and drain Africa! Now it is convenient for them as they control the exchange rates and drain SA more. They are the thieves who are making Africa more poor each day!

      John Lee - 2014-06-11 07:25

      No Marina, it's people like you who blame the bogeyman (US & UK), instead of ourselves, for all our problems. Please mention the US and UK shareholders, by name, who are benefiting. Also mention how much profit they have made. You must have seen it somewhere? You have no clue about mining as a business and only repeat what you overheard at book club. Africans (This includes whites, by the way.) are making SOUTH AFRICA poorer each day. The rest of Africa is open for business. South Africa's sun is setting.

      Reality - 2014-06-11 07:51

      > Seeing as USA and UK owns most of SA mines Really? And you think your pension and insurance is not also heavily invested in the mines? You really think Old Mutual, Sanlam, Santam, PIC, etc just plucks their dividends out of the sky?

      Sbu Sithole - 2014-06-11 10:20

      The three platinum mining companies who are currently involved in the wage dispute are all majority owned by South African investors. Lonmin was majority owned by British investors up until the 2012 massacre, they have since sold controlling interest to SA investors. The next time you consider commenting here, take a moment and consult google for some insight.

  • Jacques Steffen - 2014-06-11 08:11

    I find it ironic every time I see a suffering idiot with a "proudly South African" t-shirt. What is there to be proud of?

      Aaron Aden - 2014-06-11 09:20

      Couldn't agree more - more like an embarrassment. When I'm abroad I'm too ashamed to call myself a South African

  • Justin Pretorius - 2014-06-11 09:26

    This country is gone

  • Real Realist - 2014-06-11 09:26

    The CLOWNS with the STRIKING UNIONS will bring SA to economic ruin. Unemployment will increase because of the stupidity that seems to go hand in hand with CLOWNS.

  • Yaj Chetty - 2014-06-11 10:43

    this disaster can be traced back to the three TMs ;Thabo Mbeki,Trevor Manuel and Tito Mboweni with the abandonment of the RDP and the adoption of the neoliberal GEAR, NDP, JIPSA etc.etc

  • Utopian Indigent - 2014-06-11 11:08

    4. Example: Converted with the correct PurchaseParityR-$Rate, our education budget/child is the highest on Earth, but we are ranked last in the world. (refer newsworld report) In other words R250Billion peryear largely wasted on fat office staff & consultants. Visit any Gauteng Education District Office and see the obese effect of overpaying people who do nothing, while one or two run themselves ragged trying to save the country, often mocked by the others. THERE is the real picture of why South Africa is falling even faster than mathematics dictate. Yes, perhaps I am being insulting because nothing else gets through to a jaded society. If only we entered our 1994 miracle with humility, it may not have turned into a nightmare.

  • Utopian Indigent - 2014-06-11 11:08

    3. Do you think the amount of waste is enough to ruin an economy? Research shows that 20% of waste and corruption is uncovered, yet we report an average of R30billion per year in government alone (excluding wasteful parastatals like Eskom). So government wastes R150Billion per year and more.

  • Utopian Indigent - 2014-06-11 11:08

    2. Our economic ruin was built into the system from the start, and the factors mentioned in this article are trivial if irrelevant. What has hastened this situation is the massive amount of resources wasted by government - much of it from borrowings, and the splurge of extravagant spending by the new black middle class. Instead of wise building of family heritage like many Afrikaners did from 1948-1966, the new middle class has gone mad for German cars, unproductive assets and gluttony, all money down the drain. Government has hastened the inevitable labour dissatisfaction with its own exorbitant salary hikes, often for office workers who do nothing really.

  • Utopian Indigent - 2014-06-11 11:08

    1. This article misses the point. Yes, a deal was struck to compromise and slowly increases wages above inflation etc. However this was based on bad maths - an economy previously accommodating a few million people was expected to accommodate 51 million people (and growing rapidly) AT AN EVEN HIGHER STATUS THAN EVER BEFORE. Silly calculations were intrinsic to this e.g. that excluding a handful of young white males from job opportunities is going to make a difference to employment demographics (EE stats) for millions of people. How on earth could anyone with half a brain believe that calculation?

  • Renny Meere - 2014-06-11 12:21

    Are the unions that cruel that they destroy thousand of job oppurtunities just to make a point, don't they realize their actions will destroy the very hand that feeds it. Eish tough times ahead for South Africans...

  • rowan.louw.5 - 2014-06-11 13:48

    Google: "The Billion Rand President - what Jacob Zuma cost the taxpayer."

  • Joseph Tettey - 2014-06-11 18:25

    The ANC has created a monster that is about to swallow its much publicized better life for all.The stand-off between the Government and labor shows you cannot please all and govern effectively.Unfortunately it is the Nation that suffers.

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