SA faces decade-long battle to return to stability and growth
Retrenchments will continue to rise, many businesses will fail and employers will require fewer workers
The economic effects of the Covid-19 epidemic will without doubt endure longer than the illness. The pandemic will devastate world economies, and even leaders in growth and national income will find the road back beset with challenges.
The money that governments will need to spend directly or indirectly will only be available to the strongest economies and will make huge demands on supply — with the inevitable trade-off it has on inflation. Poorer economies will be harder hit and recovery in some cases will be unachievable.
After 10 years of almost no growth, spiralling unemployment, the exit of human and financial capital and the rampant maladministration and corruption that accompanied the Jacob Zuma years, SA finds itself in a critical situation. President Cyril Ramaphosa has shown laudable leadership qualities and the additional powers granted by the state of disaster have enabled him to act decisively — winning the respect of and unifying the nation. However, a return to normalcy, which implies stability, strong growth and full employment, is unlikely within the next decade.
Our labour market is characterised by an excess of labour supply over demand. The immediate effect of Covid-19 will be a huge loss of jobs. The economy came to a halt, in effect, when the president pressed the lockdown switch. The start-up will need to be staggered and carefully planned.
Retrenchments will continue to rise. Many businesses will fail, and employers will not require the same number of workers. What the state of disaster did, in effect, was give statutory force to the common-law contractual principle of force majeure, or the impossibility of performance.
Under these circumstances, the trade union movement will be seriously weakened and union density will continue its steady decline
The normal contractual relationship is suspended when neither side is able to meet its obligations — that is to provide work, and to supply labour — through forces beyond their control, not foreseen and provided for at the time of contracting. This is the mechanism that allows employers to lay off workers without pay.
Without this statutory act, or a declaration by one of the contractants of force majeure, there is no common-law right to short time in SA. In the absence of a contractual provision or collective agreement allowing for it, providing they tender their services, employees must be paid. Unless employers can recall their labour force as needed, without being compelled to pay those who are not yet required, many more businesses will fail — the force majeure circumstances will still pertain. Many of those who lose their jobs may never work again, at least not in the formal sector.
Under these circumstances, the trade union movement will be seriously weakened and union density will continue its steady decline. The unions’ response will be a contributory factor regarding levels of employment. Some unions continue to fight the inevitable, seeing capitalism as the enemy rather than engaging with management to find better outcomes.
SAA is a case in point. The response of the National Union of Metalworkers of SA (Numsa) to the liquidity crisis at the end of 2019 was to call a strike. This had the effect of making retrenchment and the numbers affected even greater. The Numsa and SA Cabin Crew Association attitude of “there will be no retrenchment on our watch”, and a refusal to engage with the business rescue practitioners, was another example of how an opportunity to mitigate a disaster was lost.
There will be a strong downward pressure on wages, largely due to labour excess and the weakening of union bargaining power. Wage settlement levels have fallen steadily over the last few years, with the differential between the level of increase and the inflation rate narrowing further. Adding to the downward pressure will be the public sector wage bill, as well as the acute issues of overmanning and inefficiency in Eskom.
Combined with increased inflation, the reality for most wage earners is that their real income and purchasing power will continue to be eroded, feeding back into reduced consumer demand. The issue for employers of wage increases far outstripping national productivity, and thereby increasing unit labour costs, will thus be eased.
A constant criticism by bodies such as the World Bank and the IMF has been that the labour market policies pursued by the government since transition and mirrored in the various labour statutes are inconsistent with a positive impetus to recovery. Should SA find itself in the position of having to apply to the World Bank for a loan, there will undoubtedly be pressure to reform the aspects of our labour legislation that can be described as “union friendly”.
The Labour Relations Act and the constitution unashamedly state that their preference for the regulation of employment conditions is through collective bargaining with trade unions. The act supports this and extends the notion of centralised collective bargaining by sector. This is one of the most serious imperfections in our labour market, allowing unions to extend agreements to entire industries and workplaces it would otherwise not reach.
The Commission for Conciliation, Mediation and Arbitration (CCMA) is an excellent institution that delivers a service of a consistently high standard and further plays a significant role in dispute resolution. But it is also subject to abuse by employees, consultants, lawyers and trade unions. This is largely due to shortcomings in the system and has a seriously dampening effect on the desire by employers to employ.
Strike action will continue its downward trend, mainly due to the economic backdrop and also arising from the positive effects of the recently introduced Code of Good Practice: Collective Bargaining, Industrial Action and Picketing.
One of the biggest criticisms of the 1995 Labour Relations Act was that it in effect killed the duty to bargain in good faith and put an end to the strike ballot. The amendments to the act and the code are attempts to remedy this mistake. However, the government has chosen to take an indirect approach and it will take five to 10 years before the jurisprudence becomes certain and predictable.
With the exception of the wage subsidy scheme, labour market policy in SA has focused on the supply side of labour. Statutory bodies known as sector education & training authorities (Setas) have generally been an expensive failure, while the wage subsidy scheme, which addresses the demand side, has delivered disappointing results, largely because trade unions opposed it.
However, it may yet be that what has been an immediate cataclysm socially and economically may turn out to be the stimulus that is needed to build a more cohesive and focused society. This, combined with strong leadership, can address these and the other significant problems we face in the labour sphere, with a prospect of success.
• Levy is a labour economist and consultant.