Labour watch – cost of strikes

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By Stef Landman

Do we really know the cost to the country?

Reports and data purporting to show the damage done to the South African economy by recent labour strikes are surfacing thick and fast but the real truth proves to be elusive.

Google the cost to South Africa of strikes in 2013 and a staggering 119 million articles pop up, telling you the issue is big news and of much concern to many people in many places.

Motor manufacturing, how big is the real damage?

In this year’s strike season a number of key sectors were affected, including vehicle and component manufacturing, fuel retail, mining, construction, air transport and a few more, while strikes in one or two more might still materialise.

While strikes in the mining sector this year were settled quickly with minimum disruption, it was especially in the automobile- and component manufacturing sector where protracted strikes are said to have badly affected production and exports. The actual and claimed but untested, consequences include:

  • Successive strikes by the National Union of Metalworkers of South Africa (NUMSA) in sub-sectors of the motor manufacturing and retail industry brought seven manufacturers to a standstill, who claimed big losses, especially in exports;
  • The National Association of Automobile Manufacturers of South Africa (NAAMSA) said manufacturers experienced a 75% drop in exports at a loss of approximately  $2-billion and that labour instability undermined future prospects for export contracts from multinational corporations;
  • BMW South Africa announced lost production of 13,000 cars and being ruled out by its German parent company as a contender for sole manufacturing contractor for a new model intended for world- wide export, resulting in a loss of revenue and job opportunities. BMW Germany later said it believed the labour situation in South Africa remained inherently unstable and it had no intention of reversing a freeze on expansion of production in South Africa;
  • New data from Statistics South Africa shows manufacturing output down by  3.6% in August compared to July, and up only 0.2% in August compared to August last year. The motor vehicles‚ components and related divisions lost 25% year –on-year in output during August;
  •  According to the National Association of Automotive Component and Allied Manufacturers (NAACAM) the estimated loss of income of 70,000 workers in the sector during the strike amounted to about R500-million and NAAMSA said more than 1-million man-days had been lost due to the strikes in the sector; and
  • To prevent production delays at overseas companies, South African-made components had to be airfreighted abroad at higher cost instead of being shipped by sea.

 Both President Jacob Zuma and Finance Minister Pravin Gordhan expressed concern over the effect on the economy of the protracted strikes and urged parties to resolve their differences quicker.

In its bi-annual report on Africa, released last week, the World Bank warned that strikes and a rigid labour market dispensation could deter foreign direct investment flows into South Africa, while its economy is the most vulnerable in sub-Saharan Africa to capital outflows when the US Federal Reserve starts tapering off its stimulus programme.

Downgrading this year’s growth forecast for South Africa to 2% the International Monetary Fund (IMF) called for increased labour market competition and reforms, saying strikes and policy uncertainty, among other things,were to blame for the slow growth.

Clearly a strong case can be made that strikes are causing significant damage to the South African economy. However, there is no consensus or certainty about the real extent of economic damage or exactly how and where it manifested itself.

NAAMSA for instance, in its $2-billion loss claim and 75% fall in exports did not give any breakdown as to how these figures were arrived at.

Its NAACAM’s “cousin”  in the components sector however, says such calculations cannot be made before the end of the year and the real cost of the strike for the R37bn-per-year components export sector will only be felt in a few years’ time when overseas manufacturers may decide not to renew South African contracts.

What remains absent is any credible comparative breakdown by the industry of manufacturing-, export- and revenue positions before and after the strikes and explanations of how exactly calculations were made and which factors were taken into consideration.

 Other side of the coin

Meanwhile Minister Gordhan pointed out that South Africa gave motor manufacturers “an important opportunity” to benefit from the preferential trade dispensation under the African Growth and Opportunity Act, which provides South African companies with beneficial access to the US market.

The sector is also heavily subsidised by South African tax payers. 

The 2011 Budget Review revealed that the vehicles, parts and accessories sector received about 65% of all state incentives in 2010-2011– more than R16.5-billion in 2008-2009, R17.2-billion in 2009-2010 and R17.9-billion in 2010-2011. This amounted to an average subsidy of approximately R36 000 per vehicle manufactured in South Africa.

And despite government, through a series of subsidy schemes, pumping about R20-billion into South Africa’s automotive manufacturing sector as its flagship industrial support sector, an IPS report claims other sectors actually offer much better prospects for job creation.

The question arises whether vehicle and component manufacturers are really in such a bad position that they would want to give up these lucrative benefits. Are some of them just grandstanding or perhaps trying to pressurise South Africa into even more attractive benefits, as NUMSA seems to be claiming?

A number of other anomalies and contradictions have also cropped up, including:

  • According to a Standard Bank Research Note of April this year, the number of man-days lost due to strikes in 2011 was 6.2-million while Nedbank Private Wealth political analyst J P Landman puts the figure at 5.4-million man-days;
  • Despite some of the worst labour unrest ever last year, Landman says only 4.5-million man-days were lost in 2012 – less than in 2011 and so far this year (up until the end of September) the figure is 5.4 million man-days, which is more than for the whole of last year;
  • According to Andrew Levy Employment, a respected labour relations consultancy, only about 2-million man-days have been lost to strikes so far this year, compared with 3.5-million last year, both figures being substantially lower than those given by Landman; and
  • Estimates put forward in the media as to the cost of strikes to South Africa in lost production also vary widely, ranging from R600-million to R700-million a day, with no sources being provided for these figures.

 The fact is that no reliable data is available yet to accurately measure the cost of this year’s strike action, and will not be for several more months.

Calculations to date have also been narrowly based on production losses only and do not include the full range of losses incurred by all affected parties.

Much of what is offered as expert opinion about losses incurred seems to be little more than widely varying guestimates, often influenced by  particular agendas or viewpoints. At this stage,  figures and claims should be treated with much caution.



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