12 October 2012

South Africa: Strikes Nearing 100,000 Participants


While Africa grows at unprecendented rates, its kingpin economy falls to an historic low.

Whilst the ANC came to power promising so much, including nationalisation of valuable public assets, and access to housing, education and water, the post-apartheid government quickly changed tack. Realising the dire state of the government's finances, the new government sought to encourage investment and business to kick-start growth. But in so doing, they made a series of promises which would come to constrain their ability to pursue public policy.

Firstly, they signed dozens of bilateral investment treaties - which give businesses assurances their investments will be protected. When the government tried to impose its Black Economic Empowerment programme, they were sued by mining companies for contravening their agreements by diluting the company's investments. Tax breaks have been handed out to many, along with cheap access to energy. But such boons are hard to roll back. The National Planning Commission, headed by Trevor Manuel, recently published an in-depth analysis of the country's shortcomings to date, especially in areas of education.

The current industrial unrest has taken many by surprise. But the grievances have been simmering for some time. Beginning in August with strikes at a Lonmin platinum mine, by mid-October the unrest has seen nearly 100,000 workers participate in industrial action over pay. What started in the platinum sector soon spread to gold, with AngloGold Ashanti and Gold Fields, Africa's two top bullion producers, suffering a 48,000-strong walkout. By October, it had spread to the manufacturing sector, notably a Toyota plant. Scores have been killed, notably in the shootings at Lonmin in which 34 miners died.

Companies have varied in their response. Lonmin agreed wage rises of up to 22 percent after six weeks of action and Toyota raised hourly wages by 5.7 percent. Both have been criticised by some commentators for setting precedents that could have far-reaching implications in incentivising illegal strikes elsewhere. Less accommodating were AmPlats, which sacked 12,000 illegally striking workers in early October.

The action has hit mining companies hard, costing AngloGold 32,000 ounces of gold production each week, while Gold Fields is losing 2,300 ounces a day. Investment into South Africa is down. In early October, Moody's downgraded South Africa's debt rating from A3 to Baa1, citing a deterioration in the country's institutional efficacy.

The disputes are having global repercussions. South Africa is home to four-fifths of the world's known platinum reserves, and Lonmin's South Africa operations alone account for 12 percent of global platinum output. The price of platinum has risen more than 20 percent since the August shootings. According to government estimates, gold and platinum production worth 4.5 billion rand may have been lost to strikes so far.

But it is not clear what the government can do in the near term, either to stimulate growth or encourage constructive dialogue between companies and unions. Four years of fiscal stimulus action to offset the effects of the global recessions has left the state with little wriggle room, leaving only interest-rate cuts as the option for kick-starting the economy, and tax breaks have already been handed out with abandon, as one of the government's favoured measures for encouraging investment.

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