International Finance
Economy

The grim and costly side of South Africa’s strike culture

Striking mobs have been part of the South African economic landscape for quite some time. Over the past few years however, industrial action has become more frequent, violent, and costly; and a growing worry among investors, business owners,analysts. Miriam Mannak August 8, 2014: It has been a tumultuous couple of months on the South African strike front. The year started with a bang when in...

Striking mobs have been part of the South African economic landscape for quite some time. Over the past few years however, industrial action has become more frequent, violent, and costly; and a growing worry among investors, business owners,analysts.

Miriam Mannak

August 8, 2014: It has been a tumultuous couple of months on the South African strike front. The year started with a bang when in the third week of January, 200,000 platinum workers belonging to the Association of Mineworkers and Construction Union (AMCU) downed their tools for more pay and improved working conditions.

By the time the strike was concluded five months later with a wage agreement, Impala Platinum, Lonmin, and Anglo American Platinum had collectively lost revenue worth £1.32 billion. It didn’t take long after that, four days to be exact, for thousands of members of the National Union of Metal Workers SA (NUMSA) to go on a strike. Lasting four weeks, this particular protest cost the metal sector £16 million in lost production per day.

Whilst both strikes now belong to the history books, the South African private sector is holding its breath: the so-called strike season — an annual showdown between unions and workers on the one hand, and employers on the other — is not over yet. While work protests in South Africa happen all year round, the bulk seems to be concentrated between July until mid-September. Millions of man-days have been lost as a result. In 2011, the tally stood at 2.8 million, followed by 3.3 million in 2012, and some 5.5 million in 2013.

This year won’t be better, in that regard. The platinum strike alone, based on a period of five months, 200,000 participants and 20-day work month, would equate to some 20 million lost production days.

Lower productivity levels are just one consequence of South Africa’s strike culture. Violence is another. Over the past years, work related protests have resulted in a surge in vandalisation of property, and intimidation and assault on non-strikers and business owners. There have been fatalities, even. This year’s platinum strike, for instance, claimed half a dozen lives; mostly non-strikers who died at the hands of those participating in the industrial action.

Strike deaths are not unique in South Africa. A report by the country’s Institute of Race Relations shows that 181 people were killed in strike-related violence between January 2000 and January 2013. The security guard protest of 2006 was the most deadly: 69 guards, mostly replacement workers, were killed by mainly their striking colleagues.

“Luckily, we did not experience violence during the metal strike, but we had to close our factory due to ongoing intimidation of our staff and ourselves – by strikers,” says Julia Ormaris, owner of a medium-size metal fabrication business in the Northwest province. She doesn’t want the name of her company to be made public, fearing a backlash. “Other factories in our area were affected by violence and vandalism. If strikers heard the machinery running, they would attack your factory. I visited one particular factory five minutes after it had been attacked. Some companies had staff coming in at night to work to survive.”

Analysts warn that that the cumulative impact of strike action – from lost revenue to the consequences of violence and vandalism – is playing an important role in South Africa failing to achieve its economic goals. Since January this year, the Rand has plummeted against all major currencies; overall production output and export have declined; and the meagre positive economic growth forecasts have evaporated. Furthermore, South Africa lost its position as Africa’s largest economy to Nigeria, and finds itself currently on the brink of a second recession in five years.

The above is reflected in the country’s credit rating, which has deteriorated over the past two years. In June this year, Standard & Poor (S&P) downgraded the country from BBB+ to BBB-. It was the second downgrade in two years’ time.

Reasons included growing current account deficits; income disparities; chronic supply-side and skills shortages; infrastructure bottlenecks; government debt that is expected to reach 42% of Gross Domestic Product (GDP) by 2017; and lastly, labour market rigidities.

In the meantime, some businesses seem to be re-accessing their options. Anglo American Platinum (Amplats), for instance, has announced the sale of its Union and Rustenburg mines as well as the cancelation of two joint ventures. Impala Platinum might make similar moves, media reports have stressed.

Owners of medium-size businesses too are worried and are taking some drastic measures. Ormaris is one of them. “We have made the extremely difficult decision to close down the company, which was started in 1963 by my father,” she says. “We can’t carry on with all the pressures of strikes and other financial issues that are being put on businesses in South Africa. I feel deeply for our 50 staff members, some of whom have been with us for many years. But we don’t have any other choice.”

Dawie Roodt, senior economist and director of Pretoria-based financial services company The Efficient Group, says he is not surprised and adds that companies backtracking their business decisions is bad news for future investment: “This sends a signal to investors that mining houses and other companies are not that much interested in South Africa any more. I am afraid that our country’s image as an investment destination has been severely tarnished, to a large extend by strikes. This could lead to a further S&P downgrade.”

The government says it is aware of the impact of strikes on the country’s overall investment climate and economy. In July this year, Deputy President Cyril Rampahosa, after a special parliamentary session, hinted at strike law reform. This includes the introduction of compulsory pre-strike balloting; a voting process among union members on whether to strike or not. “I would take a strike ballot as a normal type of process in the governance of strikes. I am hugely in support of that,” said the former unionist turned millionaire entrepreneur. “In view of the length of strikes that we’ve seen, that is a matter that should be debated.”

Roodt is doubtful whether anything will change. “The ANC is in bed with the Congress of South African Trade Unions (COSATU), which includes AMCU and NUMSA,” he says. “COSATU forms part of the tripartite governing alliance made up by the ANC and the communist party. The ANC needs COSATU’s two million members to keep a strong support base and majority rule. Alienating COSATU, which doesn’t agree with the proposed reforms, means the risk of losing that.”

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