South Africa: Wages Showdown Looming

The government and labour unions are on a collision course over wage and employment conditions. Some ministers want regulations relaxed so more youth can be employed; labour unions strongly disagree.

The South African government is going toe-to-toe with its tripartite governing partner, the national trade union, Cosatu, over whether labour laws should be relaxed as a way of creating more jobs for, mainly, South Africa’s youth.

The Minister of Finance, Pravin Gordhan, wants, amongst other measures, to lower prescribed wages so that companies can afford to take on more workers. Labour Unions are outraged and say they would never agree to workers being paid less or allow any labour laws to be relaxed. Gordhan is backed in the government by his predecessor Trevor Manuel, now the Minister of National Planning, and many economists.

The problem, say those in favour of a change in employment regulations, is that labour laws put in place over the years to protect workers could be the main cause of widespread unemployment today. The unions say there will be no going backwards and undoing the hard-fought workers’ gains made over the years. It insists that the minister will have to think again.

Conflicting views

The tripartite alliance between the African National Congress (ANC), the South African Communist Party (SACP) and the Congress of South African Trade Unions (Cosatu) has faced a raft of conflicting views that has threatened the unity of the government. Such dissonance has been resolved in the past in the name of inter-agency harmony with, especially, Cosatu giving most ground. This time, however, the spat has taken on the dimension of an all-in slug fest. Cosatu has made a number of commitments to its members, none of which give up the gains in salaries and benefits hard fought for in the last 17 years.  President Zuma has promised a million new jobs in five years and his lieutenants are there to do everything they can to help him deliver them. The cause will be lost, however, if South Africa’s economy grows only at its current rate of 1.5%–2.5%.

Pravin Gordhan is emerging as one of South Africa’s most pragmatic and more successful finance ministers, and his tenacious observance of policy and unquestioning loyalty are becoming legendary.
Increasingly he is butting heads with the equally uncompromising Cosatu chief, general secretary Zwelinzima Vavi.

Gordhan’s comments have annoyed Cosatu, but they will at least ignite the debate about labour laws that he considers have erected barriers to badly needed FDI, stunted the country’s global competitiveness and have done much to put the brakes on job opportunity expansion.

The World Economic Forum’s Global Competitiveness Report describes South Africa’s labour laws as “some of the most restrictive in the world”.

Changes are needed, Gordhan insists, and if they’re not “we will not be able to make the breakthrough we need to create jobs”, while stifling regulations make it expensive to hire and fire workers, and cause investors to think twice before committing funds to South African opportunities.

Most infuriating for Cosatu was Gordhan’s recommendation that labour laws be relaxed to allow firms to engage young workers at a reduced wage, to ease their way into the job market.  
The minister’s ideas cut across everything Cosatu holds holy and is being seen as an unveiled warning that the alliance, at least the ANC-Cosatu aspect of it, is at risk.

Officially, unemployment is reckoned at around 26% but is closer to 40% when considering the informal sector, and contributes significantly to the high crime rate. The level of economic disparity between the haves and have-nots makes the country one of the most unequal in the world.

“South Africa has among the least opportunities in the world for graduates and those who leave school,” says labour expert Tony Healy. “Extraordinary challenges of this nature require extraordinary interventions.”

For President Jacob Zuma, the timing is a bag of mixed challenge and opportunity. He has pledged billions of rand for job creation through increased government spending on a slew of infrastructure projects the country and neighbouring states are in dire need of.

At the same time he must contend with a range of labour law changes set in motion by the unions. These, concedes a presidential report, could cause millions to lose their jobs through new costs and regulations imposed on employers.

On the other hand the ANC continues to allocate funds aggressively for job training, hoping to dovetail the throughput of trained personnel with the appropriate skills required for the new infrastructure build.

Zuma walks tightrope

It’s a tightrope walk for Zuma. The party conference is just over a year away and he does not want to antagonise Cosatu, an influential power broker that has significantly improved the lot of South Africa’s workers by shepherding through Parliament a host of pro-labour laws.

According to Cosatu spokesman Patrick Craven, cheaper workers would take the economy backwards. “The cheaper the labour, the less tax they pay and the less money they spend in shops,” he says. Whether or not the maths holds up, it’s not what the growing legions of unemployed school-leavers want to hear.

A new study by the South African Institute of Race Relations reckons that youth unemployment is around 50% and that about half of the current generation of those between 25 to 34 years old will never work in their lifetimes.

This raises the spectre of the unemployed likely remaining unemployed, raising government spending for welfare benefits.

“Cosatu is not beholden to the unemployed,” says labour expert Healy. “They are beholden to the employed, which is their
membership.”

Government looks to the private sector

The department of trade and industry estimates that South Africa will spend close on R1 trillion ($120.8m) in infrastructure new build, refurbishment and maintenance over the next five years. That figure could grow if the public sector can persuade private companies to partner with the government.

That particular landscape is littered with obstacles of its own, although the cash-flush private sector has intimated that it is ready for such joint ventures with Pretoria if some of the remaining impediments can be removed.

These include a less-rigid labour regime and a cap on spiralling wage demands, especially in an economic environment of relatively low inflation, held at under 6% for the past 18 months. In the last 36 months, union members in mining and manufacture have muscled wage increases of around 30%, while employers have cut some 1m jobs to offset the cost of pay-packet increases and the effect of the recession two years ago.    

Gordhan maintains that in the current growth projections, “South Africa may only create 4m jobs by 2025, not enough to make a significant dent in unemployment”.

Competing with South Africa is the array of emerging nation options where labour laws are more flexible and labour is cheaper and often more efficient; some studies show that a Chinese factory worker earns about six times less than his South African counterpart and produces more.   

The outcome of the current confrontation will most likely be deferred until after the ANC conference in December next year. A splintering of the alliance will not serve the cohesion needed to ride out 2012, a year presenting many challenges, both economic and political. Conventional wisdom says the two sides will agree to disagree.