Thomas White Global Investing
South Africa
South Africa Stamp
September 4, 2009
A Postcard from Africa
South Africa: Strike Season begins in Full Force

South Africa workers strikes

From post office workers to taxi drivers to municipal government workers, South Africa has been embroiled in a series of strikes that have left investors worried and companies unhappy.

It seemed like a scene straight out of a movie. Thousands of people marching against riot police. Tear gas and rubber bullets splitting the air in South Africa’s capital, Pretoria. Chaos, confusion and violence. There was one small difference though: the protesters or strikers were soldiers from nothing less than the South African Army. Strike season in South Africa has well and truly begun.

The soldiers, who were demanding a 30% hike in wages, left the South African government red-faced and fuming, even as the Department of Defense and Military Veterans was quick to announce that it would take action against the strikers. But the Army’s strike has only brought to the fore what is fast turning into an annual ritual of sorts in South Africa – over the past few weeks, labor unions across the country have been active – creating walkouts, and demanding higher wages.

South Africa is battling its first recession in almost 17 years, ahead of hosting the world’s biggest sporting event in the soccer World Cup in 2010. Ironically, preparations for that too were held back when construction workers went on strike demanding and obtaining a 12% rise. Most of these strikes end up being settled, usually by granting above-inflation wages. This is mostly out of fear that a prolonged worker agitation would hamper production during a time when the recession has pinched companies harder. In Johannesburg, for example, a strike at one of South Africa’s largest platinum companies deepened as workers rejected a pay offer. Given that South Africa is the world’s largest producer of platinum, many worried that the action would trigger a rise in global platinum markets.

What is troubling investors is that newly elected President Zuma may not be able to keep partners happy in his coalition, especially the Congress of South African Trade Unions or “Cosatu” (a member of the ruling alliance along with the African National Congress), and the South African Communist Party. Cosatu, with more than two million members, is slowly beginning to pull its weight in the coalition, indicating that it wants greater worker representation in government. South Africa’s struggling economy has meant that thousands of workers have already lost their jobs, and with food prices skyrocketing, the unions argue that there is simply no way out. Unemployment is currently hovering around 24% with inflation at just below 7%.

Critically, the government can do little – its resources are already strained, and its spending is limited. Zuma, when he took over as president, promised business-friendly policies, and installed Trevor Manuel as his Finance Minister. Zuma pledged to pour in $303 million into a recession relief fund to help workers. But it may not be enough. The sectors that are on strike are wide-ranging – from power to communications, from gold to platinum, from coal to paper, and from textiles to rail – South Africa’s economy runs on these wheels, and a shutdown in even one of them would severely paralyze the economy. Considering that its economy is expected to contract by over 2% this year, this is a calamity that South Africa would do well to avoid. Zuma appears confident that he will be able to manage the crisis, but the biggest challenge to his tenure may have just begun.

 

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