No end in sight for South Africa’s wage problems: economists

The National Treasury, ratings agencies and economists have all flagged escalating wage demands as one of the key risks facing South Africa right now.

Last week saw several developments on the wage front, with many of the demands well in excess of expected inflation, said economists from the Bureau for Economic Research (BER) in a research note on Monday (24 May).

The group outlined some of the key demands from labour unions as follows:

  • Mining – In the gold mining sector, the National Union of Mineworkers (NUM), among other demands, wants a 15% increase in salaries.
  • Engineering – The National Union of Metalworkers of South Africa (Numsa) seeks a one-year, 15% rise in the steel and engineering sector wages.  In the same sector, trade union Solidarity is seeking a CPI+5% increase (9%).
  • Eskom – NUM and Numsa are also seeking a 15% increase in wage negotiations with Eskom Last week. All unions rejected a ‘final’ 1.5% wage offer tabled by Eskom management.
  • Public sector – A 1.5% increase is planned for public sector wages. This includes a non-pensionable cash gratuity of R978/month for a year for all employees. Assuming 1.3 million public sector workers, this would amount to an additional expenditure of roughly R15 billion in the current fiscal year. Unions want a CPI+3% increase (7%).

No room for expansion 

In his budget vote speech to parliament on Thursday, finance minister Tito Mboweni reiterated that there is no room to alter the fiscal framework outlined in the February Budget, describing it as ‘sacrosanct’.

Despite the government’s hard stance, the BER said that none of the above negotiations are heading for clear resolutions.

It added that strikes in both the private, public and state-owned enterprise sectors remain a worrying possibility at a time that the South African economy can ill afford further hiccups in its recovery.

This was highlighted by S&P global ratings in its scheduled ratings announcement on Friday night, in which the ratings agency warned that while the African economy should rebound from 2020’s steep contraction, growth prospects are clouded by downside risks.

S&P said that South Africa’s near-term economic performance and current account are experiencing a cyclical uplift as a result of a combination of base effects following a large economic contraction in 2020 and improving terms of trade from higher commodity prices.

However, structural constraints, a weak pace of economic reforms, and slow vaccination rates will continue to constrain medium-term economic growth and limit the government’s ability to contain the debt-to-GDP ratio.

Fitch, which also published an announcement on Friday, said that despite South Africa’s fiscal position improving, there are numerous downside risks.

It said that South Africa’s rating is constrained by high and rising government debt, low trend growth and exceptionally high inequality that will complicate consolidation efforts.

Its negative outlook reflects continued substantial risks to debt stabilisation despite the better than expected fiscal outturns in the fiscal year ending March 2021.

In response, Treasury said that it acknowledges the pressures the country’s credit ratings face and remains committed to addressing them.

“As highlighted in the 2021 Budget, Government’s fiscal strategy puts South Africa on course to achieve a sufficiently large primary surplus to stabilise debt,” it said. “Over time, debt stabilisation will reduce borrowing costs and the cost of capital, attracting investment that can support the economy.”

Read: It’s taking longer for South Africans to pay off government’s debt each year

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No end in sight for South Africa’s wage problems: economists