Escalating South African Labor Disputes Reflect Deeper Pressures

5 MINS READJun 28, 2014 | 11:04 GMT
Escalating Labor Disputes in South Africa Reflect Deeper Pressures
South African platinum miners at the Wonderkop mines in Marikana Rustenburg on June 25.

South Africa's five-month platinum miners' strike came to an end June 25 following a June 23 wage agreement between the Association of Mineworkers and Construction Union and mining companies. The mining shutdown, however, still slowed the South African economy in the first half of the year. In spite of a resolution with the Association of Mineworkers and Construction Union, another strike led by the larger National Union of Metalworkers of South Africa looms July 1. In both labor disputes, the workers expect consistent wage increases and the companies are limited by rising non-labor costs.

While South Africa's platinum sector stands out at the moment, similar constraints can be found throughout the industrial and mining sectors. The tension in this broad range of sectors will continue to put pressure on the country's economy and on the political balance in Pretoria.

South Africa's platinum mining industry typically undergoes disruptions every two years when contracts come up for negotiation. However, the most recent round of strikes has been different. Slimming profit margins in the face of falling platinum prices and rising energy costs have limited companies' ability to give wage concessions. At the same time, the once-dominant National Union of Metalworkers of South Africa is facing competition from the more disruptive Association of Mineworkers and Construction Union, which now represents the majority of workers in the platinum sector and staged the most recent strike.

South Africa Locator Map

South Africa Locator Map

The Association of Mineworkers and Construction Union went into negotiations demanding a 12,500 rand ($1,200) per month base wage for the lowest classes of workers. This would have doubled the salary of some union members and strained mining company budgets, an outcome unacceptable to shareholders. Companies refused to adopt the new wage structure and the union went on strike in January. As the pay hike became increasingly unlikely, union representatives softened their stance, asking instead for a gradual five-year increase to the 12,500 rand base wage. Company negotiators countered with an offer for the total pay package to reach the equivalent of 12,500 rand with wages, housing allowances and other benefits factored in. Workers rejected this offer.

The final June 25 deal reflects the difficulty of reaching an agreement amenable to both sides. Base wages are now set to increase by 1,000 rand each year for three years and there will be a one-time 13 percent increase in living allowances. By the end of the three years, the full package will nearly meet initial union demands, but mining companies will have time to shift expenses to compensate. Regardless, workers have missed five months of paychecks — an average loss of 50,000-60,000 rand per worker in comparison to a total three-year gain of 81,000 rand under the agreement.

The three-year span of the agreement is a win for the mining companies in that it delays the typical two-year disruption cycle, but a compromise on their initial offer of five years. The union also compromised on its demands for a one-time 3,000 rand raise. Still, over the three years platinum industry conditions will remain strained and rising energy costs will put further pressure on the sector.

Impacts of Long-Term Labor Unrest

The Association of Mineworkers and Construction Union strike and subsequent shutdown of the platinum mining sector caused a 4.4 percent annualized decline in South Africa's first quarter gross domestic product. The threat of the upcoming National Union of Metalworkers of South Africa strike, however, is equally dangerous and bears potentially broader implications. The recent strike involved around 80,000 workers and was limited to the platinum sector — a key export processed locally with little economic impact outside of its producing regions. A National Union of Metalworkers of South Africa strike would be different. The union has 200,000 members scattered across the construction, electricity, metallurgical and engineering sectors — a significantly wider swath of the economy.

The planned National Union of Metalworkers of South Africa strike would most directly affect the national electric utility, Eskom. Both sides already seem poised for gridlock, with the union asking for a 15 percent wage increase and Eskom offering only 4.3 percent. Eskom, currently in the process of expanding electricity generation capacity to meet domestic demand, has high capital expenditures. Any further delays in the construction of coal-fired power plants such as Medupi or large increases in labor costs, therefore, would lead to power outages during peak usage and increased electricity prices. Although Pretoria could further increase price hike limits beyond an already agreed upon 8 percent to help Eskom, the resulting higher electricity prices would risk undermining other sectors.

Eskom is a vivid example, but the strike would have further effects on South African manufacturing, a pillar of the economy that includes both automobile and energy technology. These enterprises fulfill domestic needs and provide employment. They also bolster black economic empowerment — key to the legitimacy of the ruling African National Congress.

The African National Congress came to power in the wake of apartheid as a rallying point for disenfranchised black South Africans. The legacy of economic inequality led to numerous economic programs aimed at reversing it. The government passed wage subsidies to increase employment and, more recently, pressured mining companies to give in to union demands. But the continued high wage increases and relentless cycle of labor disputes may pose a challenge to the politics of Pretoria.

The African National Congress' relationship with the National Union of Metalworkers of South Africa has already become strained. The union's demands for domestic processing of strategic minerals, export taxes and setting prices equal to import price exceed even the government's pro-labor stance. Although the union is not significant enough to pose a threat to the African National Congress' strong electoral position for the moment, future labor and industry tensions could widen the rift between the party and its traditional supporters, upsetting the economic stability and political balance of South Africa.

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