Wage Demands Prompt Inflation Fears

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Into its third week, the strike by South African public servants appears no closer to coming to an end, and indeed looks set to spread, increasing the impact on the country's economy.

At the heart of the stop work action are union demands for a substantial pay rise for their members. Having heard the government tout the achievements of a booming economy over the past few years, labour organisations feel that the public servants they represent should also share in the economy's benefits.

Though union demands for a 10% wage increase for state employees have been modified, with some negotiators saying that an 8% rise in salaries and an improvement to some of the benefits public servants receive would seal an agreement, a compromise has yet to be reached.

The initial government offer consisted of a 6.5% wage increase, an offer that was dismissed out of hand by labour organisations. This was increased to 7.25% on June 14, along with other concessions that moved the state's position closer to that of the unions, though not close enough to bring an end to the rolling strikes.

However, on June 20, there were media reports that the government may be prepared to give slightly more ground, with suggestions it could be ready to lift its offer to 7.5%.

Also on the table is an offer for wages to be increased next year in line with inflation plus 1%, salary structures in some public service professions to be revised, and a scheme to provide a housing allowance of $65 a month to state workers to be speeded up.

Fuel was added to the fire when a state commission recommended that senior South African parliamentarians be given wage increases of up to 57%. However, on June 13, President Thabo Mbeki moved to douse the flames, saying that the commission's recommendations would not be implemented.

While the strike has so far been merely an inconvenience to many in South Africa and has had little direct impact on daily life or the economy, this is set to change. Three unions, which represent some 65% of the staff at national power distributor Eskom, are preparing to join the strike at the beginning of July if their own wage demands are not met.

The unions are seeking a 12% salary increase for their members, a housing subsidy of $214 and a rise in Eskom's contribution to the employee pension fund. Eskom management responded with an offer of a 6% pay increase.

Paris Mashego, the chief negotiator for the National Union of Mineworkers, one of the three unions at Eskom, said that strike action was imminent and this would affect power supplies.

"Unfortunately, the community may experience a continuation of current blackouts," Mashego said in an interview with a local business paper on June 19.

In theory, Eskom's workforce is prohibited from striking as they are listed as essential service employees under South Africa's Labour Relations Act. However, the unions are prepared to put this to the test.

"In all respects, it is clear that Eskom is, on the whole, not [in the category of] essential services and that they are only bringing this clause to prevent labour action," said Dirk Hermann, the deputy general-secretary of the Solidarity union.

Added pressure has been put on the government with the announcement that other unions are contemplating joining the stop work campaign, including bodies representing police and corrective services personnel.

In turn, pressure has been applied to the strikers, with many having deductions made from their salaries under a policy of "no work, no pay", while some public servants, including nurses, have been dismissed for taking part in the strike.

No exact cost has been put on the effect even the state's lower-end package will have on the budget, or its impact on the inflation rate. However, analysts suggest that wage rises above 7% will directly increase inflation, a view supported by Central Bank Governor Tito Mboweni.

Announcing a half a percentage point increase in lending rates on June 7, Mboweni said that the results of the ongoing wage talks had not been factored into the bank's latest inflationary outlook, which predicted inflation to remain above 6% for much of the next 12 months, spiking at 6.3% in the first quarter of 2008. This is well up on the 5.2 to 5.9% range the bank had been working to earlier this year.

With other unions representing the private sector also pushing for salary hikes, in some cases for as much as 13%, more fuel could be added to South Africa's inflationary fires.

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