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SA is committing economic suicide

‘SA needs a mechanism where economy is put ahead of the right to strike.’

A shocking 1.4 million people stand to be affected in some way by the ongoing platinum strike in Rustenburg, now in its 16th week.

According to the Department of Mineral Resources the mineral economy makes up 9% of the gross domestic product (GDP). The sector also employs 525 000 people and a further 841 000 are employed in sub sectors supplying goods and services to the industry.

Platinum group metals (PGMs) make up nearly a quarter of mining production and is the largest sub-sector in mining. The latest statistics suggest that this subsector employs 196 000 people and highlights that PGMs is probably the most important in the mining sector, as it relies more on labour intensive methods than mechanisation.

However the 70 000 workers on strike have affected many more people. Firstly the mines involved employ 125 000 workers in the sector (including contractors) which is nearly 64% of all those working in the platinum industry.

My initial estimate of 150 000 to 200 000 people directly affected was very conservative. I learnt that the number could be closer to 325 000, as 1.6 workers are employed by suppliers for every one worker in the mining sector.

This excludes those working in many other unrelated industries in Rustenburg and Madibeng, such as the retail industry, which are also severely affected.

In these areas even welfare organisations complain of drying up payments and retailers report having to retrench people, making it clear that the platinum strike length is having an ever-greater economic effect.

So indirectly, the actual number could be closer to 350 000. The families consist of four people and one can safely say that 1.4 million people are feeling some negative effect of the strike.

No exit strategy
I honestly believe that Association of Mineworkers and Construction Union (Amcu) had no exit strategy in place for when its demands were not met. It is quite clearly a big loser here as its members will now never recover from this strike – they have lost nearly 30% of their annual income. They have become even more indebted and their inability to repay their debts is putting pressure on the financial system.

The economy too is a major loser and if the strike continues for another month or more, the economy may face a risk of dipping into a recession.

GDP effects
The R17.5 billion lost in PGM sales would also affect the current account and by the second quarter the deficit could again be over 7% to GDP. This will again alert the financial markets that South Africa is vulnerable to currency outflows.

Even if the mines start up today, it will still take weeks or even a month for the first platinum to reach the markets and have a positive effect on the current account.

GDP growth is now more than likely to dip below 2%, which will further reduce South Africa’s attractiveness as an investment destination.

The whole economy will see a sudden drop in growth rates. My estimate is that the strike will shave 0.8% of a percentage point off GDP growth. So instead of growth of around 2.7%, growth will be closer to 1.9%.

Note, this is the scenario if there are no further shocks and if the strike ends immediately.

The impact of the strike is already evident in the manufacturing industry. Manufacturing output has shown an anualised decline of 6% in the first quarter, partly due to the strike. Strikes are having a big impact on our manufacturing ability as can be seen in the chart below.

The effect of strikes on Manufacturing over the last few years.

Mining output is showing an annualised decline of about 24% in the first quarter. The huge decline in output levels in the mining and manufacturing sectors will contribute to a decrease of just over 2% in GDP growth in the first quarter. There is also significant pressure on electricity output and vehicle sales, and I estimate that the likelihood of a contraction in the first quarter is now at over 50%.

Economic suicide
South Africa is committing economic suicide and will have a negative impact for years to come, as investors will ask why government has allowed this strike to continue for so long.

There is no way that the strikers or the mines will make up the losses for years to come. (Most likely never for the miners). But the damage is greater than to just the strikers and the mines. Whole industries are looking at ways to survive the strike.

Is the strike effect similar to the great recession for mining? Probably at least equal to it – see the graph below:

Most countries would have seen ministers or even presidents getting involved long before 16 weeks.

The right to strike is part and parcel of our Constitution. Many other countries do not acknowledge this right. Most countries limit the right to strike of its workforce in one form or another, but in South Africa the only requirement is the proper following of procedure.

But what is happening to human rights of people who want to work? The rights of at least 280 000 people and their families are being affected, far outweighing those on strike.

It’s astounding that this tragedy is allowed – democracy is undermined by inaction!

SA seriously needs a method of intervention when strikes harm the whole economy. Somehow the country must be able to call an end to the strike and enforce arbitration or at least get some neutral people involved to help get everyone out of this mess.

The inaction is madness.

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