Strikes can break South Africa’s fragile economy

Eskom strike

A “mother of all strikes” from the National Union of Metalworkers of SA (Numsa) and a potential strike at Eskom may push the South African economy over the edge and into a deep recession. 

This is the warning of Xhanti Payi, senior economist at PwC South Africa, who spoke on 702 about the upcoming strike actions in South Africa. 

Typically, strikes intensify towards the end of winter in July and August, but it appears they will occur earlier in 2023. 

This month, wage negotiations kicked off in the steel and energy sectors – both involving Numsa, South Africa’s largest trade union.

Numsa said it’s mobilising for the “mother of all strikes” at ArcelorMittal SA after wage talks reached a deadlock at the beginning of the month.

Eskom unions demand a 15% wage increase for utility employees, including performance bonuses, housing, electricity and cellphone allowances, and a once-off danger allowance.

Wage negotiations took place from 19 to 21 April, and the unions have rejected the utility’s offer of a 3.75% wage hike.

They will recommence talks on 8 May 2023. 

South Africa’s fragile economy under pressure

Xhanti Payi, senior economist at PwC South Africa

Payi said that the South African economy could not afford more disruption, given its weakened state. 

Intense strike action will most likely push the economy into a deep recession if it is not already in a recession. 

South Africa has to keep economic disruptions to a minimum, Payi said, but it is unlikely that it will be able to. Things will probably get worse throughout the rest of 2023. 

The country faces a poly-crisis of high inflation, high unemployment, elevated load-shedding, and a lack of investment. All of which result in lacklustre economic growth. Ordinary South Africans are hit the hardest.

The factors contributing to South Africa’s poly-crisis will also exacerbate the intensity of the strike action, which, in turn, will exaggerate existing economic challenges. 

This can create a negative spiral which is hard to get out of. 

Inflation will remain higher for longer

Lesetja Kganyago. Copyright by World Economic Forum/Jakob Polacsek

Payi also noted that with wage demands above inflation, it is unlikely that the Consumer Price Index (CPI) will move lower in the short term. 

Disposable income has been declining in real terms and will result in high wage demands, such as the Eskom unions’ demands for a 15% increase. 

Inflation, particularly core inflation, is proving to be sticky, with the Reserve Bank’s rate hikes having little effect on CPI. 

This is because structural economic issues, such as load-shedding and inefficient logistics services, drive South Africa’s inflation. These issues cannot be solved with interest rates. 

Thus, Payi expects interest rate hikes to continue, but the Reserve Bank’s space to raise rates will be limited if the country slips into a technical recession.


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