New negotiating schedule on the cards

Public sector remuneration negotiations and the government’s budget process is badly out of sync, and the process and calendar is due for review to bring greater certainty into the budgeting process, avoid mid-year negotiation congestion, and would steer clear of the danger of disruption of schools at a most sensitive phase in the school year, as has happened this year.

Round about the middle of every year, South Africa is subjected to what has become known as the “annual wage negotiations season” – a period during which labour unions in both the public and private sectors negotiate for wage increases, better benefits and other gains.

The result of this is frequently aggressive confrontations, tense stand-offs, militant rhetoric, strikes, lost production, huge costs for the economy, sometimes violence and destruction of property and, of course, bad publicity for the country internationally. The latter is intensified by the fact that all the labour action is concentrated within a specific period of each year.

Often the worst of these battles are fought in the public sector where the government, as the employer, finds itself negotiating with a proverbial “loaded gun” held to its head. Whichever way it moves, there will be damage. Either it relents, or the public sector unions – with well over a million members – seriously disrupt the country. If it relents and gives in to the union demands, the state often has to find money for its wage bill beyond what it has budgeted – negatively affecting other critical spending.

At the end of July, the public service unions were demanding an 8.6% salary increase plus a housing subsidy of R1 000 a month backdated to 1 April – well above the inflation rate of 4.7%. The government was offering a 6.5% increase and a R620 housing subsidy effective from 1 July.

At the time, Public Service and Administration Minister Richard Baloyi said that when the negotiations process started, the government had already determined its Budget for the financial year under review, with 5.2% already allocated for personnel expense-related issues. The government’s negotiation was therefore informed by the budget allocation for salary increases against other priorities of the state.

“Given the limited space to manoeuvre in negotiations, we only managed to secure 6.5% as the final offer to the table. We as a government have already stretched the Budget beyond the limit and have already exposed some of our priorities to great risk,” he said.

By August, the government had upped its offer to 7%, with the unions digging in their heels at 8.6%. Again, Baloyi said the adjustment was above what government could afford in terms of its Budget and could put strain on service delivery and job creation in the public service.

He said it was not sustainable and would further stretch the government’s wage bill, which had already been heavily impacted by the settlement of the Occupation Specific Dispensation.

The total cost to the government would be well above the R23 billion budgeted for salary increases for the period, and it would need to reprioritise other expenditure to afford the increase, said Baloyi.

Clearly, the negotiation process and the government’s budgeting process are completely out of kilter with one another, while the damage of the broader negotiating process is untenable. This makes a strong case for the diffusion of South Africa’s annual wage negotiations by spreading it out over the full year and by aligning that of the public sector unions with the budget process.

Rescheduled process?

The latter now seems to be on the cards. After the latest adjustment of the government’s offer, Baloyi stated that there was a need to change the way in which wage negations take place in the public service and should be synchronised with the government’s Budget cycle. He said the implementation month for salary settlements should return to April and a multi-term focus in salary negotiations needed to be introduced.

After making the 7% offer, he appealed for immediate acceptance for it would provide "a bridge" to a more far-reaching negotiation process that would be synchronised with the state's budget cycle. Unions rejected the offer.

Baloyi added that there was a need to bring negotiation round to an urgent close, as it would be necessary to open the next round before November if there were to be any chance of aligning the bargaining processes with the finalisation of the Budget for 2011/12.

Baloyi further committed to a range of historical challenges being addressed during this next round, including:

·         A review of government remuneration policy;

·         The synchronisation of salary negotiations with the Budget cycle;

·         A return to April as the implementation month for salary adjustments;

·         The building of sustainable negotiation capacity;

·         The introduction of a multi-term focus in salary negotiations; and

·         Further dialogue on housing support for public servants.

With wage negotiations being spread over the entire year, instead of within a two- to three-month period, the impact would be far less negative in terms of perceptions about the country as an investment destination.

For example, in July last year, the Reuters business news service distributed a Factbox under the heading, “South Africa’s economy faces wave of wage strikes”. The report gave details of sectors affected, the state of wage negations and settlements. From that report, investors learnt that in one single month, sectors negatively affected by wage negotiations and/or strikes included gold mining, platinum mining, coal mining, diamond mining, municipalities, pharmaceutical companies, paper and packaging industries, the petroleum industry, railways, communications, doctors, the public broadcaster, and the construction sector.

This, unfortunately for South Africa, is repeated year after year. This year, it was perhaps only South Africa’s hosting of the Fifa Soccer World Cup that prevented a negative a picture from arising but, as a result, unions probably got away with more than would otherwise have been the case.

The concentration of wage negotiations into a specific period of the year will probably have other unintended negative effects. It may well be that wage negotiations at mid-year do not in all cases fit well into the financial year, planning and budgeting of a companies, thus limiting space for negotiations and leading to unnecessary strike action.

For some seasonally dependent industries, it may add to the burden of the winter slowing-down of business, although a strike during the summer productive peak would be even worse.

Also, the sudden concentrated financial burden of wage increases affects the economics of companies, sectors and ultimately the entire economy – triggering a spiral of rising costs that hit consumers and the poor the hardest.