Published on Africa Can End Poverty

After the World Cup: Policy Dilemmas Tackle South African Government

This page in:

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.


Sandeep Mahajan

Practice Manager in the World Bank’s Macroeconomic, Trade, and Investment Global Practice, responsible for the Europe and Central Asia region

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000