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" The domestic economy lost 14000 jobs in the first quarter of the year

Economists warned this week that the current strike season and the levels of violence it has so far been associated with will impede economic growth and much-needed job creation efforts.

Hein Kruger, economist at Kruger International, said that coupled with electricity price increases, the strikes and increased wage demands could signal the end for many small businesses and slow down business activity and the economic recovery.

"Many smaller businesses which just managed to survive the recession could now be dealt a final blow," he said.

"Second to government, small businesses are the biggest employers in the economy, so when these businesses fail, unemployment increases."

Despite the government's goal of creating 5million jobs by 2020, the domestic economy lost 14000 jobs in the first quarter of the year.

Abdul Davids, head of fixed income at Kagiso Asset Management, said that besides making the domestic economy less competitive, the latest wage demands could further hamper job creation.

"When the wage bill increases, the scope to create jobs becomes more limited," he said.

"Consider the impact that (minimum wages) has had on clothing factories in Newcastle."

Retailer Pick n Pay announced this week it will retrench 3137 people, almost 9% of its workforce, due to declining profitability.

Thousands of Pick n Pay's staff went on strike across the country last year, demanding a 12% wage increase.

Gina Schoeman, an economist at Absa Capital, said job creation efforts of the past few years had been largely offset by wage demands.

After the economy grew by 4.8% in the first quarter of the year, Absa Capital expects growth of 3.9% for the full year.

Schoeman said strikes did have an effect on economic growth in 2010.

"We initially thought that a 3% growth rate was achievable (last year), but it turned out to be only 2.8%," she said.

"This is also one of the risks for growth going forward."

Isaac Matshego, an economist at Nedbank, said strikes were just one of the factors constraining the economy's growth potential.

"High wage increases eventually find their way into the economic system via higher prices," he said.

Inflation has been on the rise since October last year and reached 4.6% in May, fuelling speculation that the first interest rate hike will be this year rather than next year.

But concerns about the pace of economic recovery, as also voiced by the Reserve Bank, might lead the first interest rate hike being postponed. The bank recently lowered its growth forecast for the year from 3.7% to 3.6%.

The SA Chamber of Commerce and Industry (Sacci) released its latest business confidence index this week. While business confidence edged up by one index point to 86.8 in June, the chamber said the economy was still struggling to gain the necessary momentum to filter through to much improved business confidence levels.

The chamber's CEO, Neren Rau, said the only potential silver lining that came out of strikes in 2009 and 2010 was that the economy continued to function and did not implode completely.

But the latest round of strikes would still be very negative for the economic recovery, he said.

"While many businesses will have contingency plans to help them through the initial phases of strikes, these plans are not meant to be permanent and the longer a strike lasts, the less likely contingency plans are to succeed," he said.

Sacci also released a "policy radar" this week, compiled from a survey of its members.

The results show Sacci members have increasingly negative perceptions of the impact of labour behaviour and demands on the business environment.

"There should be partnerships between business and labour towards more job creation, but instead the parties are moving further apart," Rau said.

Sacci members have reported incidents of violence during the latest strikes and Rau said this was not the type of behaviour needed when there were supposed to be partnerships.

He also bemoaned the apparent lack of action by police against strikers damaging the property of businesses.

"Businesses as juristic persons also have rights under the constitution," he said. "Why are these not being protected?"

The eight-day strike in the vehicle industry in August last year reportedly cost the industry R3.5-billion and was followed by a two-week strike in the vehicle component industry in September. This was partly blamed for the sudden slump in manufacturing growth in the second half of last year.

Mike Schüssler, an economist at Economists.co.za, said that while most businesses could make up one or two days' worth of lost production, it became difficult when strikes lasted longer than a week.

With union Ceppwawu threatening to start striking in the petroleum industry tomorrow, Schüssler said fuel stations might not run dry on the first or second day, but said it could happen if the stayaway extends to a week or more.

He said while the cost of a strike might be millions of rand on the first day or two, it will rise to billions after two weeks or more .

Due to the "no work no pay" rule strikers also feel the financial effect of not being at work.

Schüssler said that given there are 50 working weeks in a year, a worker loses 2% of his or her annual income for every week he or she strikes.

"But strikes are normal and as this is the normal domestic strike season in SA, many businesses have already discounted it," he said.

Davids agreed that workers' ability to strike was a normal fundamental right, but said the worrying aspect in SA was that it was coupled with violence and intimidation. This damaged the country's reputation, he said.