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Are these guys kidding?!

New wage demands in the mining sector are officially nuts.

It’s easy to get desensitised to things. People in war zones get used to the sound of bullets and bombs, people at nudist vacation spots get used to nakedness, people with thirty-seven cats get used to dander. So when South Africans hear extravagant wage demands year after year, it’s easy to get accustomed to them, so that you don’t really even notice how crazy they are after a while.

But take a moment to really consider the wage increases that the National Union of Mineworkers has requested this year, to fully get how insane they are. NUM has asked for a 47% increase in the entry-level wage for surface workers and a 60% increase for underground workers. Think about that for a minute – wage increases of between 50 and 60% in a country where inflation is less than 6%, in an industry facing a “perfect storm” of falling commodity prices, sharply increasing non-wage costs, and collapsing margins. That is nuts.

Now, there are floods of possible objections to my characterisation of these demands as nutty, so let’s deal with those upfront.

For a start, I understand that mineworkers don’t earn a lot. If these increases were granted, it would mean that entry-level surface workers would earn R7,000 a month, and underground workers R8,000 – not exactly the big bucks. But this doesn’t change the nuttiness of the request.

First of all, mineworkers actually earn a respectable amount compared to other South Africans. The chart below shows the average monthly earnings of South African workers overall, and broken down by race. Putting the distressing racial disparities aside, the median income for a South African with a job, a pretty rare commodity in a country with over 25% unemployment, was R3,033 in 2010/2011 (the most recent data available). Let’s say that’s been increasing by generous 10% a year, that would put today’s median at about R3,700 – far below what mineworkers are earning. In fact, mineworkers’ salaries probably put them close to the top 25% of earners in South Africa.

Second, the point here isn’t really about individual workers’ earnings, the point is about the long-term sustainability of mining in South Africa and the preservation of jobs. As the industry has matured, it has gotten more expensive to extract minerals from ever-deeper mines. With a weaker rand, equipment purchased from overseas has become more expensive. As the global economy slows, demand for commodities has been falling, putting downward pressure on commodity prices and as the South African government invests in infrastructure upgrades, the cost of inputs like electricity has shot up. The mining industry, in other words, is not in great shape.

It is thus insane for mineworkers, who know all of this perfectly well and who have already seen the threat of shaft closures at Amplats, to demand massive wage increases. It simply means more confrontations between mineworkers, mining bosses, and the police, and more job losses. From workers’ perspectives, any short-term benefit from wage increases will almost certainly be wiped out by retrenchments and mine closures.

The frustrating part is that mining union officials know this. They are not acting only out of concern for their members; rather, their actions are also motivated by the escalating turf war between NUM and the emergent Association of Mineworkers and Construction Union (AMCU), which has poached thousands of NUM members. NUM wants to appear to be doing more for its members than AMCU in a bid to retain its preeminent position on the mines. The fight, in other words, is as much about union dues as it is about workers and their needs. The long-term economic interests of the country – its ability to sustain a mining industry and mining jobs – are all but lost in all of this.

What’s more, the immediate knock-on effects of this type of wage demand are also distressing. After NUM issued its demands, for example, gold company stock prices fell sharply and the rand hit four-year lows. This type of “wage negotiation” is, in short, unsustainable. It is damaging to the country’s economy in both the short and the long term.

Some high-level government officials recognise the problem. The National Planning Commission, for example, has said that it is vital for South Africa to come to some kind of agreement or social contract for employment. Such a contract would require government to invest in infrastructure, wage subsidies, and job creation, business to invest more and to emphasise training, and unions to recognise the need to balance real wage moderation with efforts to raise productivity. Unfortunately, such an agreement has not been forthcoming, and if this year’s wage demands are anything to go by, we shouldn’t be holding our breath. 

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South Africa is facing significant challenges and not all are of our own making. This month’s issue of The Moneyweb Investor takes a closer look at Donald Trump's economic policies and considers their implications for South Africa.
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