May 5, 2021


SOUTH AFRICA: Labor battles about to get serious

BY Anne Frühauf

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  • Public-sector wage negotiations will test Finance Minister Tito Mboweni’s ability to hold the line on his ZAR 300bn savings pledge.
  • At state-owned power utility Eskom, management has rebuffed labor’s opening demands for double-digit wage increases.
  • A public-sector strike looks increasingly plausible, while Eskom’s “essential service” classification generally rules out legal industrial action.

High stakes in public-sector wage talks

The fiscally all-important public-sector wage negotiations will reach an inflection point this week: after wage talks deadlocked on 23 April, the Public Service Co-ordinating Bargaining Council (PSCBC) will determine on Wednesday, 5 May, whether there is a dispute between the government and public-sector trade unions, including the Public Servants Association (PSA) and unions affiliated to the ANC-aligned Congress of South African Trade Unions (COSATU). If a dispute is declared, a legally mandated conciliation process ensues, which could eventually pave the way for the first broad public-service strike since 2010.

This year’s wage negotiations will arguably be the toughest in decades, as union members accustomed to above-inflation increases face off against Finance Minister Tito Mboweni’s drastic pledge to slash the wage billby more than ZAR 300bn (USD 21bn) over three years. While workers face their worst wage outcomes in decades, Mboweni, whose fiscal consolidation strategy hinges almost entirely on wage restraint, is on the hook to deliver his massive savings to skeptical credit rating agencies.

What’s on the table

The Treasury’s savings target implies a virtual wage freeze, though the government – represented by Minister of Public Service and Administration Senzo Mchunu – has offered to pay an estimated ZAR 9bn worth of annual allowances in the form of a once-off ‘gratuity’ in an attempt to avoid base increases. It also wants to steer away from inflation-linked pay increases – a major change from past practice.

By contrast, the trade unions’ demands include: 1) wage increases of inflation plus 4% (CPI stood at 3.2% y/y in March); 2) a near doubling of the monthly housing allowance (from ZAR 1,300 to ZAR 2,500); and 3) a 12% “disaster” allowance (over base pay) for those workers who work in Covid-19 or other disaster conditions.

Who has the upper hand?

While the two sides seem further apart than ever, behind the scenes trade union leaders, particularly those affiliated with COSATU, seem somewhat resigned about the new era of austerity that is upon them, even if they decry publicly that public servants are made to pay the price for the fiscal fallout from years of grand corruption. Unions already suffered a major betrayal when Mboweni refused to implement the third year of the 2018/19-2020/21 wage agreement. A loss at the Labour Appeal Court for the first time established that the Treasury effectively has the power to veto unaffordable wage deals mid-cycle. An appeal at the Constitutional Court is still scheduled, though not until 24 August.

Both Mchunu and Mboweni seem relatively aligned and determined to draw a line in the sand. The politics would not appear to favor the government, given that the ANC wants COSATU’s support for its election campaign ahead of the 27 October municipal elections. However, union weakness could help the Ramaphosa administration. COSATU unions have already pledged their “unwavering support” for the ANC in the local elections, discarding a bargaining chip too early in the game. Moreover, divisions between the PSA and COSATU unions mean that they have failed to coordinate their strategies, so the PSCBC may have to hold separate talks with different unions. In an unusual step, Mchunu has appealed to citizens – as recipients of public services – to suggest solutions to the wage impasse. While mostly a PR gimmick, this is an attempt to undercut any public empathy for labor, in a context in which ordinary South Africans are suffering worsening poverty and unemployment (at 32.5% in 4Q 2020).

Nonetheless, strike risks are rising fast. Even if a disruptive strike ensues, the government is only likely to make marginal concessions. One plausible outcome would be a single-year wage agreement, particularly as the unions will be loath to sign longer-term deals on which the government could well renege given the 2020 precedent.

SOE talks

The public-sector wage negotiations will also loosely influence wage negotiations at public enterprises. At Transnet, the Transport and Allied Workers’ Union (Satawu) and the United National Transport Union (Untu) rejected a wage increase offer of 3% on 23 April. The unions are also demanding guarantees against retrenchments. A conciliation process is now getting under way, but strike appetite appears to be growing.

The most important negotiations in the SOE space started at Eskom on 4 May. Trade unions – the COSATU-affiliated National Union of Mineworkers (NUM) and the radical National Union of Metal Workers (NUMSA, which broke away from COSATU in 2013) – are demanding fanciful wage increases of 15%. In addition, NUM has demanded that Eskom increase housing allowances from ZAR 3,425 to R7,000, as well as standby allowances and medical aid contributions. At the same time, the unions oppose any retrenchments at Eskom’s 46,000-strong workforce.

In return, Eskom has proposed changes to existing conditions of service (including overtime pay), before wage increments can even be discussed. NUM leaders have reportedly decried this opening gambit as tantamount to “offer[ing] 0% without pronouncing it.” The first Eskom CEO who dared to table a 0% pay offer was Phakamani Hadebe in 2018, before being effectively overruled by Public Enterprises Minister Pravin Gordhan.

Clearly, the brewing labor standoff is the last thing that Eskom needs in the context of debt approaching ZAR 500bn (nearly USD 35bn) and crippling operating challenges. Strike risks are traditionally limited at Eskom because the industry is categorized as an “essential service” and industrial action is usually interdicted via the courts. Nevertheless, go-slows or less official forms of labor action cannot be ruled out, which could render Eskom’s already precarious operations even more prone to disruption.

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