July 2 (Bloomberg) -- Striking metal and engineering workers in South Africa demanding big pay increases are threatening growth as the country seeks to fend off another economic decline.
Platinum workers won a 20 percent raise in basic pay after a strike dragged down South Africa’s gross domestic product 0.6 percent in the first quarter. Yesterday’s walkout of 220,000 metal and engineering employees all but halted production at companies that account for 4 percent of the economy.
Demands for wage gains are a long time coming. South Africa suffers from the widest income disparities on the planet, according to the World Bank. Executives earn as much as 300 times the average wage of workers and the economy remains dominated by white people and politically connected blacks 20 years after Nelson Mandela became South Africa’s first democratically elected president. And the platinum employees’ victory may unleash a broad new wave of labor unrest.
“The perception out there will be that they did very, very well,” said Andrew Levy, who has consulted on labor relations in Johannesburg for more than 35 years. “It’s going to harden attitudes.”
The problem is that the specter of widespread strikes across the country threatens to disrupt the economy as employees and management hammer out wage improvements. South Africa will probably miss this year’s growth target of 2.7 percent, Finance Minister Nhlanhla Nene said. The metalworkers’ walkout may affect as much as 40 percent of the nation’s exports.
The platinum strike alone dragged down South Africa’s GDP and ended June 24 with miners winning wage increases of as much as 1,000 rand ($94) a month. That will boost mining costs at a time when almost half the pits are losing money. The country produces more than two-thirds of the world’s mined platinum, and the labor dispute drove down total mining production by 25 percent in the first quarter from a year earlier.
The strike by members of the National Union of Metalworkers of South Africa poses further peril for the economy. The strike may last a month, Gina Schoeman, an economist at Citigroup Inc. in Johannesburg, said in a note to clients. Numsa is demanding a 12 percent increase for workers while employers have proposed a three-year deal that includes raises of as much as 8 percent the first year. Talks between the parties resume tomorrow.
The common ground between miners and metal workers is distrust of the ruling African National Congress’s ties with business owners. They also criticize ruling party leaders as being out of touch with the tribulations of poor South Africans.
The nation’s deputy president, Cyril Ramaphosa, co-founded the National Union of Mineworkers in 1982. Since then he’s created a business empire with stakes in the local McDonald’s Corp. franchise and a Coca-Cola Co. bottling plant that have made him one of South Africa’s wealthiest people.
“We think there is a collusion between the state and the private sector to maintain the status quo,” Irvin Jim, Numsa’s general secretary, said on June 29. “They can’t relate to the debate we’re talking about because they’re stinking rich.”
The strike at as many as 12,000 metal and engineering companies will affect exports and may widen the shortfall on the country’s current account in the third quarter, Schoeman said. “If production is off line for even a month, the likely impact on exports is meaningful” from industries that include petroleum, machinery, chemicals, rubber and plastics, she said.
If the standoff does last that long, South Africa’s GDP may shrink in the third quarter, Schoeman said.
Numsa has also threatened to lead a walkout by about a quarter of workers at Eskom Holdings SOC Ltd., which generates more than 90 percent of South Africa’s power, and held a picket outside the utility’s Johannesburg offices today. A wildcat strike at Eskom “would just add to the pain,” Mark Rosenberg, senior Africa analyst at Eurasia Group in New York, said in a note.
The union won’t be intimidated if Eskom threatens mass dismissals, saying there will be blackouts if that happens, the South African Press Association reported, citing Steve Nhlapo, Numsa’s head of collective bargaining.
A stoppage that causes blackouts could make the union less popular than what platinum miners experienced, Nazmeera Moola, an economist and strategist at Cape Town-based Investec Asset Management, said in a phone interview. “If the strike goes on for too long and causes electricity disruptions, they could lose public support.”
Institutions and laws intended to resolve labor deadlocks in South Africa were largely ineffective at ending the mining standoff.
In the platinum strike, talks under the Commission for Conciliation, Arbitration and Mediation became deadlocked within less than two months. Elize Strydom, chief negotiator for the Chamber of Mines lobby, told Johannesburg’s Sunday Times that poor negotiating skills among officials at the mediator were “incredibly frustrating.”
Mines Minister Ngoako Ramatlhodi, appointed in May, said new legislation was needed giving the state power to settle protracted deadlocks. “Let’s assume this lasts for a year, it means the parties have exhausted themselves to death,” Ramatlhodi said June 10. “Death meaning in this case we close the mines and workers lose their jobs.”
Groups embroiled in labor disputes in South Africa need better ways to negotiate, said Levy, the research company head.
“Our labor relations are very destructive and that’s the one that needs work,” Levy said. “The parties really need to find better ways of engaging and trying to do on a more constructive basis.”
--With assistance from Rene Vollgraaff in Johannesburg.