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After the World Cup: Policy Dilemmas Tackle South African Government

Sandeep Mahajan's picture

The 2010 FIFA World Cup drew to a close on July 11, 2010, with a Spanish victory and a thunderous ceremony. South Africa took a bow as the world applauded its wonderful organization of the high profile tournament.

A record number of people across the globe viewed the tournament, and the crime rate was the lowest of any World Cup. The direct economic impact of the event is estimated at around 0.5% of GDP in 2011, and the tournament did much to burnish South Africa’s image across the world as an attractive tourist destination.

Sadly, the real drama started after the curtains came down on the World Cup.

In particular, a coalition of unions, representing over one million-public servants -- including teachers, doctors, nurses, police, and court and government officials -- has launched an indefinite strike after the unions’ demand for an 8.6% salary increase (plus 1,000 rand monthly housing allowance) was rejected by the Government.

The latest counteroffer by the Government was 7% salary increase and housing allowance of 700 rands, and even that offer it says is barely affordable, coming as it is on the heels of a two-third increase in its wage bill in the last three years.

 

In a country with one of the highest unemployment rates in the world, made worse by the global crisis, and with inflation running at around 4%, the Government’s offer would seem rather generous. But the unions wanted more and have pressed ahead with the strike, severely curtailing delivery of essential government services for the ordinary people. Earlier, under acute pressure from the unions, Eskom, the public power utility, had agreed to a 9% wage increase, and Transnet, the transport utility, to an 11% increase. In the meanwhile, workers in the car manufacturing industry are demanding under threat of a strike that their salaries be increased by 15%.

As noted, this is quite alarming set against the unemployment figures. 

The official unemployment rate stood at 25.3% in 2010Q2, up from 21.9% in 2008Q4, reflecting a cumulative loss of close to 1.1 million jobs (almost 700,000 of them in the formal sector). Disheartened by the bleak prospects, large numbers of men and women have simply dropped out of the job market, indicated by a precipitous decline in the labor force participation rates; from 57.3% in 2008Q4 to 54.3% latest.

The ranks of “discouraged” workers swelled as a result by 739 thousand over this period, and, including them, the unemployment rate increased from 26.7% to 32.8%. The impact of the global financial crisis in terms of job losses has also been disproportionately higher in South Africa compared with middle income countries in Eastern Europe and East Asia, underscoring the structural rigidities in the South African labor markets. Total employment level fell by 7.5% between 2008Q4-2010Q1, while the real output loss was only 0.5% over this period.

The unions are also calling for further reductions in policy interest rates, and were visibly miffed at the South African Reserve Bank after it decided to keep the repo rate at 6.5% in July. With CPI inflation running at just over 4%, a strong rand, still fragile domestic demand, and growing global concerns over deflationary prospects, there certainly was an argument to be made for a rate cut, but, ironically enough, the above-inflation wage bargains proved to be a big deterrent for SARB. The unions, in the meanwhile, have also called for a weaker rand to stimulate the exports sector.

Simultaneously calls for higher wages, employment creation, lower interest rates, and weaker currency: an unenviable policy circle for the Government to square.

Comments

Submitted by M.L. Furioso on
I think expansive fiscal and monetary policy is exactly what's needed in a downturn. N'est ce pas?

Submitted by Anonymous on
(i) If Mr President chose one of his wives as the FIRST LADY, we the tax payers would not have to pay for all the others - needless to say, for over 20 CHILDREN!(ii)If the Minister of Defence would act as a public servant and not as royalty, there would be enough money for all. She has spent more on luxury vehicles to boost her IMAGE than on anything productive. (iii) If the Minister of Police would pay his debt owed to the tax payers for staying at a luxury hotel in Cape Town for x months, leaving a tab behind fit for royalty, then there would be enough money. (iv) If Ministers and Ministries would cut down on ridiculous expenses, banqueting bills, unnecessary ceremonial activities, then there would be enough money (v) if SA would put an end to AID and DONATIONS to Zimbabwe and other rogue states, then there would be enough money. (vi) If SA stopped paying for Aristide and all other exiled VIPs, there would be enough money for better wages. (vii) If SA closed its borders; it would take care of its people FIRST and foremost. SA should also sanction rogue states and corrupt African political leaders for forcing their people out of those countries and into SA.. (viii) As Eusebius Kaiser mentioned: The ANC has been living a lie. It is a Capitalist Party that pretends to care for the poor by dishing out huge sums of welfare money, but deep down, the ANC leadership is there to fatten its pockets, to hell with the people. You can’t pretend to be pro poor when all you care about is MONEY, WEALTH and POWER. The ANC is so off its original course! (ix) If Affirmative Action was halted, inefficiency could be cut down. Productive service delivery could be put into action, whereas now, SA has to put up with unqualified, unproductive people who have the job just because of their skin colour, not because they deserve/qualify for the job. We are riddled with incompetence, fruitless expenditure and elevated training costs as the majority of those hired lack education, competence and efficiency. After 17 yrs of Affirmative Action enough damage is visible! (x) If cadre deployment was sanctioned, then efficiency would rule, then only would there be enough money for all. (xi) SA wants to act as a league player, yet it has poverty and shortages at home. Charity ought to begin at home...our taxes should reach OUR people first, then the region...if there is any extra. (xii) The ANC Government has to stop paying back all countries that helped in the struggle epoch, and it has to start investing in the country. It has to do with running a COUNTRY and not a CIRCUS! and Finally, those who are out in the streets demanding higher wages, many of them are so inefficient at what they do (or should be doing) that quite frankly, they do not qualify for a bonus of any kind as they drain the system with training costs and inefficiency. Show your talent before you demand higher wages!

Submitted by Anonymous on
South Africa's approach must centre on tackling underlying competitiveness issues. In my view, improvements in productivity & competitiveness will inevitably lead to higher investment and economic growth. This growth should support employment creation needed to address stubborn unemployment.

Submitted by chris mkhize on
First, I feel I need to thank your office for canvassing for public views on a matter of so much of public interest and socio-economic development. I believe, as you certainly demonstrate that you also do, that the problems South Africa currently faces mainly originate, at least in my humble opinion, from an inadequate understanding of the fact that it is very easy to destroy than to build in any given situation. Questions that quickly come to mind are: (a) How much understanding do parties involved in the current socio-political and economic impasse understand about rights investors have to invest or not to invest in a country embroiled in squabbles, tensions, disruptive strikes and unrest?. (b) The irony of the current situation is that South Africa currently faces huge challenges of high rate of unemployment and serious changes in our education and health sectors. Against this background, one would expect parties involved in the current wage and political negotiations to be very cautious and careful about how fast they should negotiate their differing viewpoints on wages and political power control. Second, I need to state that my analysis of the current nature of conflict in South Africa is that it is in most instances inspired and fuelled by one or more of the following factors: greed, political power struggles, appointments not based on merit, nepotism and lack of meaningful citizen participation in public policy development processes, monitoring and evaluation, leading to lack of public accountability. The outcome of the whole process is that innocent citizens, the country’s trading partners and corporate organisations all end up suffering or looking for better options if these could be found and obtained elsewhere. South Africa is undoubtedly one of the most beautiful countries in the world. Our climate, throughout the year, remains admired globally. Compared to most African countries, the country currently boasts of a highly developed infrastructure required for sustained development. Lastly, I need to suggest what could be done to address the current and unfortunate situation. I believe this is what you have asked of respondents. I am not going to state that the current strike in our public sector has left numerous citizens angry about the whole drama. One picks up these feelings in all social conversations. Most people complain about children that are now losing their education in the current protracted and chaotic negotiation process. Some people are already dying in hospital mainly as a result of lack of medical treatment or total neglect by health workers and authorities. South Africa has a legitimate government – legitimate in the sense that the government we have is a product of democratic processes. One of the responsibilities of such government is to act in a fair, just and best interest of all its citizens, and not very much in the interest of a section of its citizens. Harsh realities South Africa currently faces are that its citizens would like to see law and order maintained, to avoid seeing the country slide rapidly into a state of complete anarchy. Some statements that come from some fellow citizens make one doubt if these citizens are still genuinely part of the country we, as citizens, should aspire to transform, using available constitutional, legal and democratic means at our disposal. I just fail to imagine a government that would prefer not to act harshly when some people, for whatever reason, prevent patients from having access to centres of health care services or preventing those guided by their consciences or professional ethics to assist people on the brink of dying or in need of help. In short, my call is on government to govern and protect innocent citizens. If there is a need to change laws, to give government more and meaningful power to do so, such laws, in my opinion, should be made and applied as a matter of urgency.

Submitted by liku on
All those on strike have no idea what the 8.6% increase would have on the economy as a whole. This might lead to some of them being unemployed due to huge wage bills- inflation might get out of control and they will begin to complain again about high food prices yet they invited it- even tourist attraction would be affected as long as the country is not stable- that is but to say a few of the effects of salary increases...

Once I started reading this article, I was really pleased to read that world cup 2010 has left an awsome impression on the world about South Africa. It was expected that this may change life of a normal poor South African. But the dilemmas you have mentioned here really alarming and disturbing. Its time to wake up.

First I have to thank you for the World Cup support. I took nice pictures and my kids got a glimpse on what Peace may look like. Reminded me of the days when news on crime were not our daily "bread". Back to reality though. Can anyone help me with the success rates of: 1) Democratic Governments which came to power with the assistance of UN security council. 2) Upliftment with the assistance of world bank funds. May I ask the following questions on South Africa: 1) Were are the promised UN investment in our Tourism projects? 2) Why are funds channeled through well known corrupted routes? 3) Why were Gov. corruption in the first place employed? 4) Who are accountable for Squatter camps growing by the day? 5) Who are accountable for impoverishment instead of Upliftment? 6) Why is one third of the Boer Nation being starved to death, another third butchered, and the last third emigrated? 7) Why are Nobel prices issued and Presidents Knighted whom everyone know are about to implement extermination of Nations in Africa?

Submitted by Anonymous on
i am a high school student and i have been analysing the commentary on this blog as a matter of interest. i am rather intrigued by the prospects of unemployment increases as a result of public sector strikes. Can someone please clarify the macro-economical effect of these strikes for me. Why exactly would they cause such a dire impact on the South African economy and why is a wage rate higher than the inflation rate bad?

Well based on the fact that you are a school student, I will try to explain my understanding as follows: "unemployment increases as a result of public sector strikes" Gov has a fixed budget for personnel expense, and the cost per person determent how many people can be employed out of that budget. The higher the cost, the less people can be employed. "why is a wage rate higher than the inflation rate bad?" The budget is based on Government income which is again based on prices the public can afford to pay its services (relates to inflation rate). If public service costs is higher than the public can afford, it means government will have to deal with a public uprising as is the case in Mozambique now. "macro-economical effect of these strikes" The Macro economy get income from infrastructure services to Micro economies such as a business (its customers) who needs a good infrastructure to operate well. No service due to strikes means no income from its customers. If public services strikes is severe, it can cause failure of all its customer's operations which means zero customers = zero income = zero macro economy = bankrupt goverment.

The recent FIFA World cup has really contributed heavily to the African economy. And thats evident from the response of their government. Such events really helps in a heavy in flow of cash from around the world.

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