Johannesburg - South Africa, recently emerged from a bruising five-month-long platinum industry strike, is heading for what could possibly be an even bigger showdown on the labour front after public sector unions tabled a demand for a 15 percent wage hike last week.
This plea, from 16 unions who are representing around 1.3 million state employees, would be impossible for the government to agree to without jeopardising the country’s finances, and risking the ire of the credit rating agencies.
It comes at a time when there is clamour for Finance Minister Nhlanhla Nene to present a credible plan to plug the budget deficit and the current account deficit when he presents his first Medium Term Budget Policy Statement on October 22.
If history is any guide, the wage talks will be awash with tension and acrimony right at the onset as the government has very little wriggle room to accede to the double-digit increase when the Reserve Bank forecasts inflation this year to average 6.2 percent.
The last strike by the public sector unions, which shut schools and caused chaos in hospitals, and was accompanied by widespread intimidation, continued for three weeks through most of August 2010.
It cost the economy an estimated R1 billion a day. When it was settled, state spending went up by 1 percent.
Economists said the demand was wide of the mark and even if the unions did come down, as they usually did, and a settlement was reached it would be at a huge expense to the economy.
Hugo Pienaar, senior economist at the Bureau for Economic Research at the University of Stellenbosch, said: “The 15 percent wage demand is simply way out. It is detrimental to the budget and the rating agencies would downgrade us further. Long-term interest rates would go up.”
He said the GDP expectation had already been scaled down to 1.7 percent in 2014, so government revenue would be less than budgeted.
Pienaar said the current wage settlement, which expired at the end of March, was consumer price index plus 1 percent. On that basis, he expected the final settlement in this round would be 5 percent to 6 percent as inflation would average just above 6 percent in 2014.
Azar Jammine, chief economist at Econometrix, said the 15 percent demand was way in excess of projected inflation, raising the possibility of public sector workers embarking upon a substantial nationwide strike in the first half of 2015.
He said: “Emboldened by the aggression of industrial action recorded in the first seven months of this year, the threat of an even bigger strike among public sector workers must stand as the principal danger to the economy achieving growth of between 2.5 percent and 3 percent, the range of most expectations, next year.”
Jammine said the government had very little room to manoeuvre, given its commitment to reducing the budget deficit progressively over the next three years.
“Giving in to ambitious wage demands would most certainly result in a rising than falling trend in budget deficits, with the associated likelihood the ratings agencies would then revise downwards the credit rating on the South African government bonds.
“In turn, this would increase long-term interest rates, forcing government to cut back on more vital social expenditure.”
He said the most obvious way in which the government could make way for bigger wage increases than those budgeted for would be to reduce the size of the public service.
However, in recent years, it had been precisely the increase in employment in the public service which had provided whatever employment growth has occurred in the economy.
“Private sector employment has remained fairly static. Therefore, in the short term, to reverse the rising trend of public sector employment would aggravate the trend of overall employment and could also exert downward pressure on economic growth.”
Jammine said the more favoured alternatives would be to increase the productivity of those employed in the public service. Positive real wage increases could then be justified, without generating higher inflation or reducing overall economic growth.
“The risk here is that the ruling ANC party would stand to lose votes in forthcoming elections. Better still, however, would be if government were able to make inroads into excessive wastage within government spending.”