Labor Laws Cut Hiring as South Africa Unemployed Swell: Jobs

Joe Mtwazi stood on the corner of Rose and Strand streets in Cape Town, signaling to passing vans that he’s available for hire. A pickup truck stopped and he joined a scuffle of about 10 men for slots on a building crew, emerging unsuccessful.

“I’ll do anything,” Mtwazi, 34 and a black father of two, said in an interview on Aug. 1. He hasn’t been permanently employed since being fired as a painter four years ago and competes for part-time jobs, earning between 100 rand ($12) and 200 rand a day if he gets hired. “Sometimes I don’t eat because I don’t have money,” he said.

Mtwazi may soon find it even harder to get a job as South Africa’s government moves to change labor laws that companies say already fuel a 25 percent unemployment rate and constrain growth in Africa’s largest economy. Proposed laws pushed by the country’s labor unions seek to give temporary workers the same rights as permanent employees if they’ve been on the job for more than six months, forcing up costs for retailers such as Cape Town-based Pick n Pay Stores Ltd., which will be required to raise pay and extend pension and medical benefits to those workers.

The jobless rate hasn’t dropped below about 22 percent in the past four years as the economy fails to create enough work for 4.5 million South Africans who are unemployed. Another 2.3 million are so discouraged they’ve given up looking, government data show. For black South Africans, the unemployment rate is 29 percent.

Deter Hiring

Laws that require employers to negotiate wages at an industrywide level and make it difficult to fire workers because of poor performance deter hiring, according to companies such as Johannesburg-based AngloGold Ashanti Ltd. (AU), Africa’s largest gold producer.

South Africa was ranked 139 out of 142 countries on the competitiveness of its hiring and firing practices, just behind France, Spain and Sweden and ahead of Portugal, according to the Geneva-based World Economic Forum’s 2011-2012 Global Competitiveness Report.

“There may well be a mismatch between the aspirations of South Africa and the argument that you need to be a much more wealthy, developed nation to enjoy the luxury to have those things in place,” Razia Khan, head of economic research for Africa at Standard Chartered Plc in London, said in a telephone interview on Aug. 3. “It is very difficult to justify having those kinds of policies in place.”

Bargaining Power

South Africa is ranked 138th on the World Economic Forum’s scale measuring the flexibility in determining wages, just after Sweden. The Labor Relations Act of 1995, which promotes industrywide wage agreements, has strengthened the bargaining power of labor unions and made it easier for them to call for strikes.

The minimum monthly wage paid to a 19-year-old apprentice in South Africa is $543, according to the World Bank’s 2012 Doing Business study. In China, where unemployment is at 4.1 percent, the minimum wage is $183, while it’s $300 in Brazil and $30 in India. Brazil’s jobless rate is 5.8 percent, while in India it’s 9.8 percent.

South African lawmakers now are debating changes to the Labor Relations Act that will force companies to treat temporary workers like permanent staff after employing them for six months and make employers jointly liable for violations of labor laws by their staff contractors. Proposed amendments to the Basic Conditions of Employment Act will enable the labor minister to set minimum wages for “vulnerable” workers on industrywide bases and make it easier to unionize.

‘Detrimental Effect’

“They would have a detrimental effect on business and I think the country as a whole,” Steve Glendinning, human resources director at Mr Price Group Ltd. (MPC), a clothing and furniture retailer, said in a phone interview on Aug. 3 from the eastern port city of Durban, where the company is based. “Our country is riddled with unemployment. You don’t want to exacerbate that situation.”

President Jacob Zuma’s government is already under strain as it struggles to contain the myriad social effects of joblessness, including poverty and crime. About 35 percent of South Africans live on less than $51 a month, according to government data, while the murder rate of 31.9 per 100,000 is more than six times that of the U.S. South Africa pays social- welfare grants to almost 16 million individuals, or about a third of the country’s population of 50.6 million.

Labor Push

The Congress of South African Trade Unions, the country’s largest labor grouping, which helped to sweep Zuma into power in 2009, has been the main force behind a push for more restrictive labor laws. The federation, representing about 2 million workers, argues that high unemployment levels make workers vulnerable to exploitation and more needs to be done to protect them.

“Regardless of progress we are making in transforming our country in various sectors, the triple challenges of poverty, inequality and unemployment persist,” Zuma said at a June 29 policy conference of the ruling African National Congress. “These affect primarily the black majority. Something drastic must be done.”

Zuma, 70, may be yielding to pressure from labor unions as he shores up support before a party leadership contest in December, said Zwelethu Jolobe, a political analyst at the University of Cape Town. Zuma ousted former ANC leader Thabo Mbeki in 2007 with the help of labor unions.

Election Support

“Zuma has been reaching out to labor more and more because he needs them,” Jolobe said in a telephone interview on Aug. 6. “He has an election coming up. Having labor on his side is very important because they are an organized constituency.”

Mac Maharaj, Zuma’s spokesman, said changes to laws are debated by the government, businesses and labor groups. Allegations that the president can influence the process were unfounded, he said in a phone interview today.

Under apartheid, the system of white minority rule that prevailed from 1948 to 1994, black South Africans, who make up 79 percent of the population, were used as cheap labor for the country’s mines and factories and excluded from certain jobs because of their race. The ANC has revised labor laws since then to address job inequality and prevent a repetition of such abuses.

Even state-owned companies are opposed to the new labor restrictions. Eskom Holding Soc Ltd., which supplies about 95 percent of South Africa’s electricity, told lawmakers its ability to hire construction workers to build new power plants may be curtailed.

‘Grossly Irresponsible’

If passed, the changes to the laws could cost the economy 320,000 jobs during the next five years, said Loane Sharp, a labor economist at South Africa recruitment company Adcorp Holdings Ltd. (ADR)

“It is grossly irresponsible to introduce this kind of legislation in difficult economic circumstances,” he said in an Aug. 1 interview in Cape Town. “Businesses suffer because they have reduced flexibility. Employment will suffer. The political calculus is winning the day.”

The jobs crisis is compounded by an inequitable education system that denies proper schooling, skills and employment opportunities to millions of poor children, according to the World Bank. The quality of South Africa’s primary education system is ranked 127th out of 142 countries by the World Economic Forum, one position lower than Mali.

“It’s difficult to find work without qualifications,” said Marvin Daniels, 34, a homeless man in Cape Town who earns 210 rand working three nights a week as a cook in a coffee shop. “I’m trying to get a permanent job to get off the streets.”

Create Jobs

The ANC-led government has pledged to create 5 million jobs and slash the unemployment rate to 14 percent by 2020. That requires economic expansion of 7 percent a year, more than double the 2.7 percent growth forecast by Finance Minister Pravin Gordhan for this year.

For unemployed laborers on Cape Town’s streets, waiting for the economy to improve or the authorities to turn the situation around is something they can’t afford.

“We are suffering,” Mtwazi said, as he joined about 30 other men on the sidewalk waiting for the next passing van.

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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