• Gordhan said government close to announcing reforms: FT
  • Rating companies seek measures to combat labor instability

South Africa’s biggest labor group said Finance Minister Pravin Gordhan’s statements that the government is close to announcing reforms to labor legislation were premature.

Negotiations on the minimum wage are at a “delicate stage,” Sdumo Dlamini, president of the 1.9-million member Congress of South African Trade Unions said by phone on Monday. Talks on other labor reforms, including pre-strike balloting, were “nowhere near closure,” he said.

Gordhan said in an interview with London’s Financial Times published on Sunday that the government is close to announcing a series of reforms to the labor market. These would be “on the minimum wage, on balloting before strikes, on compulsory arbitration, so that strikes don’t last for ever,” he said.

With the economy having contracted 1.2 percent in the first quarter and local government elections looming in August, Gordhan has to work on economic reforms to appease credit-rating companies without alienating labor unions allied to the ruling African National Congress. S&P Global Ratings kept South Africa’s credit assessment at BBB-, one level above junk, on June 3, warning that it could cut the nation’s debt evaluation unless more is done to foster growth and combat political and labor instability.

Treasury spokeswoman Phumza Macanda couldn’t immediately respond to questions by phone and e-mail on Monday.

‘State Capture’

Ratings companies never speak in the interest of workers and contribute to delays in agreements on issues like a national minimum wage, Dlamini said in an interview at Bloomberg’s Johannesburg offices on June 30.

“What is that, if it’s not another form of state capture and keeping in a stranglehold the government?” Dlamini said. “Sometimes the role of the ratings agencies is also a challenge when they simply do not allow us to build our own country the way we see it in South Africa.”

S&P is due to announce its next rating assessment in December. Fitch Ratings Ltd. also kept its evaluation of South Africa’s debt at one level above junk last month and Moody’s Investors Service left the nation at two levels above non-investment grade in May.

The fact that South Africa avoided a downgrade to junk last month doesn’t allow for any level of complacency and rating companies were very clear in their reports on the progress they need to see to keep the nation’s debt on investment-grade level, Reserve Bank Deputy Governor Daniel Mminele said in an interview at Bloomberg’s offices in Johannesburg on July 1.

“It’s important to accept that ratings are used by international investors,” he said. “We run twin deficits, a budget deficit and a current-account deficit, we depend on dipping into other people’s savings, so they are very very important because they drive decisions in terms of investment flows a such, but I don’t think one could say they capture countries.”

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