South Africa’s rand hit new four-year lows on Monday after Mercedes Benz said workers at an assembly plant had staged an illegal strike and the government-allied union demanded big wage hikes for coal and gold miners.
The car maker said workers agreed to resume operations on Tuesday after several days of wildcat action in South Africa’s auto industry, centered on the port city of East London.
But news of the halt spurred a currency fall already underway after it emerged that wage hikes of up to 60 percent had been demanded by the National Union of Mineworkers (NUM).
The rand, a highly liquid emerging market currency vulnerable to sudden shifts in sentiment, hit its lowest levels since 2009 in morning trade and then lost another 3 cents in the late afternoon session to a new four-year low of 9.4875/dlr.
The NUM pay demands in a submission to the Chamber of Mines seen by Reuters on Sunday rattled mining investors after wildcat strikes at platinum and gold mines killed 50 people and cost billions in lost output last year.
Employers and workers are squaring off for next month’s salary bargaining period against a backdrop of high inflation and shrinking company margins in Africa’s largest economy due to soaring costs and sinking commodity prices.
This is making South Africa vulnerable, said George Glynos, managing director at financial consultancy ETM Analytics.
“Commodity prices are retreating, you have wage negotiations which look like they are turning pear-shaped even before they have begun, and all that on top of a fragile economy,” he said.
Shares in Africa’s top bullion producer AngloGold Ashanti fell more than 4 percent and rival Gold Fields shed 4 percent to 4-1/2 year lows after gold fell for an eight straight session on global markets.
A fierce union turf war is damaging labour relations at South African mine shafts, with the NUM fighting an aggressive challenge to its once near monopoly of members from the growing Association of Mineworkers and Construction Union (AMCU).
AMCU has poached tens of thousands of platinum miners from NUM in an increasingly violent struggle at mine sites.
The union battle poses a headache for President Jacob Zuma’s ruling African National Congress (ANC), which faces criticism that it mishandled last year’s mines violence. Opponents say it and the mainstream NUM have neglected the rights of workers and sided with mine bosses, a charge they both deny.
The ANC’s Secretary General Gwede Mantashe, a former top NUM official, defended the union on Monday, saying that “recent attacks” on it were akin to an attack on the ruling party’s alliance with its labour allies.
Last year’s mine violence dented South Africa’s image with investors and led to ratings downgrades for the economy.
NUM, a key political ally of the ANC, is seeking an entry-level minimum monthly wage of 7,000 rand ($750) for gold and coal surface workers and 8,000 rand for those underground, according to the submission to the chamber of mines obtained by Reuters. The latter would represent a 60 percent rise from the current minimum wage of 5,000 rand a month.
NUM also said it wanted 15 percent increases for “all other wage categories,” meaning more experienced and skilled workers. Wage talks are due to begin next month.
South Africa’s Solidarity trade union, which represents mostly skilled workers, said on Monday it was seeking 10 percent pay increases for its members from the country’s gold and coal producers in the upcoming negotiations.
With spot gold fetching around $1,350 an ounce, down close to 20 percent so far this year, South Africa’s mines, the deepest in the world, are hard pressed to turn a profit.
“If you look at the all-in-costs for South African gold miners, including capex (capital expenditure), the break-even costs right now are anywhere between $1,100 and ounce and $1,400 an ounce,” said David Davis, mining investment analyst with SBG Securities.
NUM still represents the bulk of the rank and file in the gold and coal sectors and needs to be seen taking a tough line with management to head off the assault from AMCU, which now dominates the platinum sector specifically.
African Bank Investments, a lender to lower-income South Africans such as miners, said on Monday many of its debt-laden customers were struggling to pay back their loans.
“The knock-on effect from the recent strike activity led to increased debt servicing burdens,” the bank said in announcing its first-half earnings.
AMCU’s rise has been built in part on perceptions that NUM’s leaders have grown too close to management and the ANC.
The view from the boardroom is somewhat different as NUM has been wringing above inflation wage hikes for its members over the past decade, a huge squeeze on company margins.
But even increases above inflation do not go far for workers at the bottom end of the pay scale who on average have eight dependants and are mostly drawn from poor rural areas.
Inflation, which is currently running near 6 percent, looks set to accelerate further given the recent weakness in the rand.