Many African economies are booming. South Africa’s is not. Europe, its biggest export market, is mired in recession. Mining output fell in February and again in March. Consumer confidence is at a nine-year low. Massmart, part-owned by Walmart, this week became the latest big retailer to report disappointing sales figures. Unemployment is above 25%. If those who want work but are too discouraged to look for it are included, the rate is close to 37%.
In such circumstances, a cut in interest rates might ginger up the economy. But South Africa’s central bank kept its benchmark rate at 5% on May 23rd, in part because of an alarming decline in the rand in recent weeks. The weaker currency will push up import costs and boost inflation which is already close to the top of the target range of 3%-6%. The rand’s slide is part of a general sell-off in emerging-market currencies against the dollar, but few have fallen as hard. And there are concerns that the foreign investment that South Africa needs to finance its large current-account deficit is being scared off by a fresh bout of industrial strife.
Wage demands seem destined to be unmet. The National Union of Mineworkers (NUM) has called for pay rises of up to 60%, just as gold and platinum prices are falling. NUMSA, the metal-workers union, wants a 20% pay increase for all its members. Wildcat strikes recently hit Lonmin’s platinum mine in Marikana, where dozens of striking workers were killed by police last August. The threat of unrest goes beyond the mines. “If no agreement is reached, workers will have no choice but to go to the streets,” warned Mphumzi Maqungo, NUMSA’s national treasurer.
Such demands are not consistent with a 6% inflation cap nor with stable employment. Gill Marcus, the central-bank governor, warned that “the risk of a wage-price spiral remains high”. The wonder is that unions can ask for such pay deals when so many people are out of work. But the unemployed in South Africa cannot price themselves into work because of strict job-protection laws. The workforce is divided between privileged “insiders” and mostly young “outsiders”. As in the bits of Europe with hard-to-fire workers and high unemployment rates, those in work have many out-of-work dependents to support, so feel justified in their wage demands.
This year’s claims have been given an extra boost because unions are in a battle for relevancy. The NUM has been displaced in Marikana’s mines by AMCU, an upstart which now has the majority of Lonmin’s platinum workers in its ranks. The NUM is affiliated with COSATU, a union federation with close ties to the ruling African National Congress (ANC). Members who deserted felt its officials were too cosy with the powers-that-be, including employers. What better way to retain its rank-and-file support—and win lost members back—than an eye-watering pay bid?
But as the slide in the rand continued, the ANC leadership started to worry out loud. “If we do not resolve our labour-relations challenges, we will all be losers, we will see deteriorating confidence, job losses and business failures,” the finance minister, Pravin Gordhan, told parliament. It was a statement with which no one could disagree, but which also did not call on anybody to resolve the problem. Typically, President Jacob Zuma outdid him in his criticism of nobody in particular (and certainly not the unions): “We should demand better salaries and working conditions, but we may not wreck the economy.” With such vague guidance, industrial peace is unlikely to break out soon.
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