Ben Temkin
9 July 2009
column
Johannesburg — ON NEWS of the construction workers' strike, I had expected a sell-off of shares in the sector on Tuesday. This didn't happen. The JSE construction and materials index barely shivered. Its close on Tuesday was 48, well within the range between 48 and 50 since it reached a six- month figure of 40 early in March.
If the Private Investor portfolio was in the business of trading and not maintaining its buy-and-hold strategy, the high probability of a strike would have triggered its sale of its shares in Murray & Roberts M&R). This is, after all, what traders do -- bet on high probabilities of changes in investment fundamentals. Buy- and-hold investors wince and endure the long ride.
M&R's closing share price was R47,45 and, while I write, it's down 1% to R46 -- hardly a tumble.
This is, of course, an opportune time for construction workers to strike. The infrastructure for 2010 football World Cup is at risk of not being ready. Our other showpiece, the Gautrain, may not run in time. Contractors are under pressure and their employees are holding the high cards.
Construction companies are already under pressure from rising costs, and tenders for new projects, unrelated to the World Cup, have already been shaved to secure contracts in the domestic economy as global construction shrinks.
Let me cursorily try to sketch an even-handed view of the strike.
On the face of it, the cause is over a pay dispute. The workers want a 13% pay rise and the employers will offer only 10%. This three-percentage-point difference seems small but if the employers agree to 13%, this is 30% more than they reckon they can afford.
Ultimately, the pay dispute will have to be resolved and there will be a dent in the earnings of listed companies for a while. Current tenders will be less profitable and future tenders are bound to be at higher contract prices.
However, the pay dispute is not the only reason for the strike. Listening and reading comments from spokesmen from the trade unions, I have noted repeated and often angry observations on what they regard as a serious grievance -- that so many employees enjoy only temporary, contracted employment.
They feel that employers abuse these contracts, which apparently allow them to terminate contracts even while projects are continuing. Temporary employees, I understand, also don't enjoy standard employee benefits such as pension rights.
Temporary employee contracts are, unfortunately, part of the nature of construction. When and if Gautrain is running, it's improbable that the next white elephant will be built between Pietermaritzburg and Durban. If it is, workers could hardly be expected to move en masse to KwaZulu-Natal and new temporary employees would be drafted in the new location. If, however, employees are indeed at risk of being dismissed ad lib while a contract is in progress, this is an understandable grievance.
The dispute is much more complex than described in my cursory sketch. When it is settled, there will, I fear, be yet other unresolved issues.
My point is that risk is endemic to equity investment. You can always choose cash and risk the certain damage by inflation.
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