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South African State Payouts Stir Demands in Private Industry

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Sept. 7 (Bloomberg) -- South Africa is set for its worst year of industrial action since all-race elections in 1994 after a 20-day strike by state workers won them raises of more than twice the inflation rate, encouraging miners and autoworkers to hold out on their pay demands.

About 1.25 million working days were lost to strikes in the six months through June, double that in the same period last year, according to Johannesburg-based Andrew Levy Employment, which advises clients on labor relations. It expects even bleaker data in the second half, when the 20-day strike by state employees cost about 10 million working days.

The labor action has spread to private industry, with about 80 percent of the 6,800 workers at Northam Platinum Ltd.’s Zondereinde mine downing tools on Sept. 6, after other walkouts by car-parts makers and gas station attendants. Manufacturers say that rising wages and the labor unrest threaten to undermine the competitiveness of exports, curb investment and deter companies from hiring in a country where 25 percent of workers are jobless.

“The competitive challenge has never been greater and this wage-cost inflation makes the situation even more challenging,” David Powels, managing director of Volkswagen AG’s South African unit, said in an Sept. 2 interview in Cape Town. “It’s a very serious situation. The impact on our customers, export customers in particular, is critical.”

On Aug. 31, the government agreed to give its 1.3 million employees a 7.5 percent pay increase, 2.3 percent, or 6.5 billion rand ($894 million), more than was set aside for wages in the February budget. Yesterday, unions that had been demanding 8.6 percent raises suspended their strike, which shut thousands of schools and saw patients turned away from state hospitals, giving themselves 21 days to consult their members.

‘Knock-on Effect’

A benchmark for this year’s wage settlement was set in May by the state-owned transportation company, Transnet SA,, which gave its workers an 11 percent increase to end an 18-day strike, Powels said.

State workers are not underpaid relative to other South Africans, according to Mike Schussler, chief economist at Economists.co.za., a Johannesburg-based advisory service.

“Civil servants get paid 28 percent of all formal sector wages, although they only make up 21 percent of all formal sector employees,” he said by phone yesterday. “There is definitely a knock-on effect” when they win such high increases.

The government denies it is driving up wages for private industries.

Companies won’t concede “anything that they can’t afford,” Trade and Industry Minister Rob Davies said in a Sept. 2 interview. “Workers have the right to pursue a decent standard of living and decent work.”

Car Industry

Gas station attendants and workers in the auto-parts industry began an open-ended strike on Sept. 1, demanding pay increases of 15 percent, more than double the 6 percent offered by employers.

Volkswagen, Toyota Motor Corp. and other vehicle manufacturers last month agreed to grant 10 percent increases to end an eight-day strike that shut their plants, while Impala Platinum Holdings Ltd., the world’s second-largest platinum producer, raised wages by about 8 percent to ward off labor action. Northam workers are demanding 15 percent increases before they return to work, while the company is offering them 8 percent.

South Africa’s inflation rate is currently 3.7 percent.

“Overall wage settlements in South Africa are not only divorced from inflation but more importantly productivity,” Peter Attard Montalto, an economist at Nomura Plc in London, said in an e-mailed response to question on Sept. 6. “The government is clearly setting a bad example to the rest of the economy. The inflationary effects should start to come through from the first quarter of next year.”

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

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net.

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