Striking an Economic Blow

　　Confidence in South Africa has been waning forsome time, highlighted last year by the downward rating ofcredit agencies and uncertainty displayed by internationalinvestors given growing socio-economic tensions in Africa’spowerhouse economy. More recently, the lack of confidencehas been pushed to a new level as widespread mass industrialaction, at times militant, takes place in various sectors to markthe start of the year’s “strike season.”

　　The labor conflicts have been harming the already vulnerablegrowth outlook for South Africa’s economy even further.

　　A mere 0.9-percent GDP growth was recorded in Q1 2013,down from 2.5 percent in 2012. In Q2 2013 growth reboundedto 3 percent, but is unlikely to top 2 percent with the adverseimpact of current strikes still to be calculated.

　　The contagion of industrial action has made headlines inthe automotive, construction and mining industries. Whilesuch strikes and wage negotiations impact the South Africaneconomy regularly, what differentiates these negotiations fromthose previously, are the high pay demands requested by unionsfor their members, in a still-struggling economic climatefelt by local and international companies alike.

　　Continued labor relations challenges in the miningsectorhave particularly shaped perceptions and further fueled theloss of confidence by investors. With 80,000 gold miners strikingfrom work on September 3, it is estimated that this will costthe country’s already struggling gold industry more than $3.5million per day. The National Union of Mineworkers (NUM),the largest union representing workers in the mining sector, isdemanding a 60-percent wage increase for gold mine workersand has suggested that strikes could drag on for weeks.

　　The wage increase demands are spurred on by the factthat, now, more than one year after the tragedy of the killingsat the Marikana mine strikes, change in the mining industryhas been slow. Top mining executives continue to reapexorbitant rewards, while mineworkers consider themselvesto be poor; although, according to estimates by South Africaneconomist Mike Schussler, miners (particularly rock drill operators)fall into the top 25 percent of earners that are formallyemployed.

　　Beyond local production disruptions due to widespread laborunrest, and a continuously weakening Rand (South Africancurrency), challenges of slacking global economic conditionscontinue to persist. In recent months this included sluggishexport demand in Europe, the end of the Fed’s stimulus, whichis impacting capital movements from emerging markets, and,particularly affecting the mining industry, the slower and lessresource-intensive growth figures in China, which have beenmirrored in softer international commodity prices.

　　These factors combined with recent power blackouts (anddelays at Eskom’s new Medupi power plant due to ongoingstrikes) and increased inflationary pressures, have contributedto South Africa being a laggard in its own region. The Africancontinent is expected to record growth rates in excess of 5percent in 2013. They have also implicated the country’s internationalcompetitiveness, with South Africa recently havinglost the position of most competitive economy in Sub-SaharanAfrica to Mauritius. It comes as no surprise that this latter slippagehas been spurred largely by tensions in the labor marketas well as failing education and health systems.

　　Despite recent substantial development plans by thegovernment to boost output, with a multi-billion dollar focuson transport and infrastructure construction, South Africacontinues to grow below potential. A paper released by theSouth African Reserve Bank (SARB) estimates that throughthe creation of a greater enabling environment for foreign anddomestic investment, coupled with a reduction of the skillsconstraint and lower input costs, restrictions to growth couldbe overcome. In fact, addressing these issues could doubleor even triple GDP growth rates. Yet this cannot be achievedwithout a social compact and increased trust between government,business and labor, which is currently lacking.

　　With the 2014 elections fast approaching, the rulinggovernment has increasingly come under pressure to meetservice delivery and job creation promises. Making a dent inunemployment numbers, with about a quarter of South Africa’swork force not having jobs, will however only be achievedat 5 percent growth or more. What is required is the right leadershipto address the persisting wealth gap, the lack of growthand pessimistic outlook for the country internally, before it canbe expected that external actors will have confidence in SouthAfrica.