As both the World Bank and Business Unity South Africa (Busa) last week downwardly revised their economic growth forecasts for the country, experts warned that the impact of the present labour turmoil would be felt nine months down the line. With the accompanying risk of community discontent, it will hit the ANC-led government at the worst of times: in the middle of its campaign for next year’s general elections.
In an analysis last week, Leadership Intelligence Bulletin wrote that, among others, the volatile labour scene “impactsseriously on business and investment decisions and threatens the successful implementation of the government’s National Development Plan (NDP).”
This contention was confirmed later in the week when the World Bank, in a report on South Africa, slashed its economic growth forecasts for the country, citing the severity of both domestic and external risks – particularly the potential for worsening labour unrest. The unrest in the mines, in particular, is singled out.
It threatens to spread to bigger sectors such as manufacturing and is plunging the economy into a vicious cycle that may spiral into stagflation, disinvestment and more social upheaval.
At the same time, Busa has downwardly revised its economic growth forecast for this year to 2.2% from 2.5%, following disappointing economic growth in the first quarter.
"Although still a positive growth rate under difficult circumstances, it is increasingly inadequate to support South Africa’s employment and development goals, implying the possibility of yet further job losses," said Busa special policy adviser, Professor Raymond Parsons.
News agency Reuters quoted George Glynos, managing director at financial consultancy ETM Analytics, as saying in reaction to the World bank report that "there is a nine-month lag which generates the highest correlation between the depreciation of the rand and the impact on inflation.
"Whatever disposable income you negotiate in your wage talks gets eroded away in the months that follow," he said.
The rand has lost 16% against the dollar since the beginning of the year and hit new four-year lows last week. The latest plunge was triggered by concerns about the mining sector.
The plunge was further accelerated late last week by data indicating that growth in the South African economy slowed to a snail's pace as manufacturing output shrank.
All this is spooking investors and sowing the seeds of more social discontent, as data shows a strong correlation between the rand's performance against the dollar and inflation, with a time lag of nine months.
Inflation is currently just under 6% and will accelerate, with the biggest exchange rate impact likely on food and fuel prices, which will hit working-class households hard, Reuters reported.
The full impact of the rand's current weakness will be fully felt only nine months down the line.
Wage negotiations are expected to be tough amid rising worker militancy on the back of the intense turf war between the National Union of Mineworkers (NUM), which is aligned to the ANC, and the Association of Mineworkers and Construction Union (Amcu).
To add fuel to the tensions between the NUM and Amcu, the former last week won a six-week respite to regain its position as the majority union at the Lonmin mine in the already volatile North West province 'platinum belt'.
The Johannesburg Labour Court ruled last week that the NUM has until 16 July 2013 to prove it is sufficiently representative in terms of the current recognition agreement with the mine. This comes after Lonmin earlier gave notice to the NUM that it should vacate the office it had at Lonmin shafts by 30 May.
It is going to be a tough task for the NUM to re-establish itself as the majority union at the mine, since it is estimated that at this point Amcu has approximately 70% representation there.
As the battle between the unions intensifies, with the ever present danger of its impact spreading beyond just the platinum belt or the mining sector, strikes seem to be a certainty, which will put mine incomes under pressure and which may knock the rand further.
It makes for a scenario where wage increases will soon be devoured by inflation. This, in turn, could easily fuel worker anger next year – sparking another round of strikes and another round of investor flight, renewed pressure on the rand, followed by more inflation.
All this will not paint a rosy picture for the ANC come election time next year, while it has declared that the aim is to capture two-thirds of the vote.