Johannesburg - The strike in the metals and engineering industry risked paralysing nearly a third of the manufacturing sector and was a further contributor to South Africa’s already deteriorating reputation among investors, Moody’s Investors Service warned yesterday.
The rating agency said the strike by the 220 000 members of the National Union of Metalworkers of SA (Numsa) left the country unable to take advantage of the recent pick-up in growth among its trading partners, consigning it to a third consecutive year of sub-par growth and posing risks for stabilising government debt metrics, a credit negative.
Moody’s said the consequences for the economy would depend on how long the strike lasted, since ahead of the industrial action the affected firms said they had built up above-normal inventories that could last up to two weeks.
It said the scale of participation in Numsa’s strike meant it would be the largest in South Africa’s history.
Moody’s said: “The strike by 70 000 platinum sector workers in the first half of this year resulted in an estimated 8 million lost workdays; the Numsa strike threatens to bring this year’s number of lost workdays close to the 20.7 million record set in 2010. The conclusion of a tripartite labour framework agreement in July 2013 has brought little relief from work stoppages.”
It said South Africa’s reputation among investors was being increasingly damaged by the strike-prone nature of its economy. Car makers BMW and Nissan recently decided against expanding their production in the country when they introduced new car lines, citing the costs posed by last year’s month-long strike in two major industry sub-sectors.
Moody’s said the new strike would prolong South Africa’s weak growth cycle.
“The strike will prevent the affected and affiliated South African companies from taking advantage of the economic upturn in western Europe, which in aggregate is South Africa’s largest trading partner.”
It added that continued weak investment, exports and overall growth would pose serious challenges to the government’s efforts to rein in its budget deficit and stabilise its debt metrics, a credit negative for the economically troubled country.
Also yesterday, the HSBC purchasing managers’ index (PMI) for June pointed to a further deterioration in operating conditions at local private sector firms, with the headline PMI falling fractionally from 49.7 in May to 49.5.
HSBC said the reading marked the third successive monthly contraction, but the pace of decline remained marginal, adding that the weaker headline index partly reflected further declines in both output and new orders.
“Companies reported that the mining strike remained one of the main factors weighing on private sector demands,” HSBC said.
It said data suggested the drop in total new orders was broad-based, with new export business also declining on the previous month.
The rate at which foreign demand fell was the sharpest in two years, with no survey participants commenting on increased competition. - Business Report