I believe that Marikana will prove to be a seminal event for our young democracy. While there is a chance that the dust settles and that we return to 'life as we knew it', the probability of such a scenario is low. Marikana is enormously important because it has opened the nation’s eyes to the desperate socio-economic realities of our country; for the precedent it has set in labour relations, and for the implications it has for the long-term health of South African Producers.
I do not think that this strike was about wages:
Opinions vary, and a presidential commission of enquiry has been set up to investigate the reasons for the tragedy. But I believe that it was the result of a confluence of factors.
We should not forget that violent strikes and service protests are unfortunately a part of everyday life in South Africa. Between 2009 and 2011, we lost an average of 8 million man-days through strike action and experienced 100 service delivery protests per year. I think that we were living on borrowed time. In almost 20 years of democracy South Africa has achieved much. The economy has grown strongly and defied many of the naysayers. But, for many citizens, democracy has changed little. A staggering percentage of people still live in abject poverty, with inequality worse than it was in 1994.
Education is in crisis, with only around 45% of those entering the education system matriculating and then only with an average mark of less than 50%. Unemployment is soaring, as high real wage increases and declining productivity force business into shrinking the work force. Service delivery in the townships is dismal. A surprising percentage of the Lonmin strikers were not, in fact, employees but people who had come to the platinum belt in search of work. Local municipalities have not been able to deal with the influx of people, resulting in desperate living conditions in the many townships surrounding our mines.
The South African labour force is becoming increasingly uncompetitive. This has grave consequences for corporate South Africa, which is being forced to absorb higher labour and infrastructure costs (mainly electricity but also municipal rates, water etc.). The education system is not producing the skilled graduates needed to compete as a nation. Productivity is declining as we suffer the consequences of a Labour Act that makes it difficult to link productivity and pay. Just recently, a CEO of one of the major gold mining companies spoke to us of long-term plans to reduce their South African labour force by two-thirds. South Africa produces less than 10% of the world’s gold. The hard truth is that the world does not need our gold. Our gold industry is in decline. This means that higher wages equal a smaller industry and a smaller workforce.
In this context the precedent set in the Marikana tragedy is concerning. An illegal strike resulted in material wage increases (around 14%). A survey compiled by COSATU prior to their recent congress concluded that approximately half of COSATU’s members believe that violent strikes achieve more than peaceful strikes. The illegal strikes have already spread to the gold industry, with a decent chance that they spread beyond mining. With Anglo Platinum having paid employees for not working in a period when employee safety was at risk, I wonder if the ability of companies to enforce the ‘no work, no pay’ principle that underpins industrial relations is at risk. If employees who want to work are subject to such violent intimidation that they cannot reasonably be expected to come to work, can pay be withheld?
This will have long-term implications for labour relations in South Africa. What is the future of the collective bargaining process? Indeed, what is the future of the formal bargaining process when employees can strike illegally several months after the conclusion of wage negotiations and be rewarded with further wage increases?
This is depressing stuff indeed, with implications for the long-term competitiveness of all labour-intensive industries in South Africa. Given our physical distance from major global markets and the cost increases that capital-intensive industries have been forced to absorb, the outlook for Producers is bleak.
We are witnessing the hollowing out of industrial and mining South Africa. Every business person with whom we interact is shrinking his or her labour force – not because they want to, but because they have no choice if their companies are to compete in local and international markets. That is why the wage increases, granted out of desperation by a devastated management team post-Marikana, are ultimately anti-labour. It will result in higher costs, a smaller work force and reduced production as miners cut marginal shafts and growth projects (both of which have already happened in the past few weeks). Ultimately capital follows opportunity, not need. If we do not create opportunity for the global mining industry, then South African mining production will continue its decline, notwithstanding the extraordinary mineral wealth with which we have been blessed.
As we have seen in the south of Europe, countries can appear to prosper while competitiveness is declining. This is a fools’ paradise. Low interest rates and increasing levels of debt (sound familiar?) keep the music going and create the illusion of prosperity. But the ultimate day of reckoning always comes. Most consumer-facing businesses are soaring as their customers benefit from high real wage increases and free-flowing unsecured credit. At the same time, our economy’s foundations are weakening as Producers battle to remain competitive.
At Coronation we believe that the platinum industry will survive. South Africa produces most of the world’s platinum and consumers will just have to accept a higher price. But South Africa will pay for this in the form of a smaller platinum market than would have been the case at lower prices. For the gold companies, we are less sanguine. They cannot afford higher labour costs, the world doesn’t need our gold and the industry is already in decline. For consumer-facing businesses, we remain concerned that they will ultimately face the realities I describe above. And the rand? The currency is always the pressure valve for a country that loses competitiveness. Southern European countries devalued their way out of crises for centuries. The difference this time around is that the euro monetary system took that option away. South Africa will show a c.6% current account deficit this year – a concerning number in the context of the budget deficits we are running. International money has poured into our bond and equity markets. But when sentiment shifts, history shows that this money moves quickly. The rand is vulnerable to a major re-set in the years ahead.
I conclude with a recent quote from Ford’s Asia Pacific and Africa president, Joe Hinrichs:
‘No one country is isolated. We use suppliers from all over the world. We all compete in a global marketplace. We have 100 plants all over the world and we rarely have disruptions there. That happened 30 years, 40 years ago. I cannot remember the last time we had disruptions in the US, India, Brazil or China.’
Hinrichs added that labour costs in South Africa were rising faster than inflation, and that the economy was punctuated with frequent work stoppages, such as at the ports and, currently, in the transport industry.
'For South Africa to compete, it needs to take a higher perspective on what all of this means to the country. The labour economic growth rate and work stoppages do not measure up to a globally competitive scale.'
Karl Leinberger is CIO and a member of the executive committee. He joined Coronation in 2000 as an equity analyst, was made head of research in 2005 and appointed CIO in May 2008. Karl co-manages the Coronation Houseview portfolios.