Public Wages Impasse Puts South Africa's Ramaphosa in a Bind

(Bloomberg) -- A standoff between South Africa’s government and unions representing its 1.3 million workers over pay puts President Cyril Ramaphosa in a jam.

While his administration has pledged to stick to its deficit targets and expenditure ceilings -- a tall order if it buckles to demands for increases of as much as 12 percent -- he can ill afford to alienate the unions ahead of next year’s elections or risk strikes that would curb growth. He’s also indebted to the unions for backing his campaign to win control of the ruling party last year, a victory that set the stage for him to replace Jacob Zuma.

Public Wages Impasse Puts South Africa's Ramaphosa in a Bind

“He is in a Catch-22,” Sethulego Matebesi, a political analyst at the University of the Free State in the central city of Bloemfontein, said by phone. “The unions are not going to buy into the argument that the government can’t afford the increases they want.”

The wage talks have already dragged on for more than seven months. The eight unions that represent teachers, nurses and other state workers have warned they won’t tolerate the government’s “delaying tactics” much longer.

Offer ‘Inadequate’

“There is an inadequate offer on the table,” the Congress of South African Trade Unions, the country’s largest labor group, said in a statement. “We caution government against creating an environment that will force workers to consider withdrawing their labor and embark on what will be a calamitous strike.”

Cosatu, an ally of the ruling African National Congress, “isn’t ready” to declare a dispute over negotiations, the labor federation told reporters on Tuesday in Johannesburg.

Civil servants last staged a strike in 2010 that dragged on for three weeks before they were awarded 7.5 percent raises. Three-year settlements were reached in 2012 and 2015 that increased wages by 7 percent in the first year and inflation plus 1 percentage point for the next two years. South Africa’s inflation rate fell to a seven-year low of 3.8 percent in March.

While wage talks were due to resume on Tuesday, the government requested a delay until May 3, saying it needed more time to consult. The current pay deal expired at the end of March and any increases will be backdated.

Sustainable Deal

“We understand the urgency of the situation and the need to conclude these talks timeously, but we also want to ensure that we package a deal that is workable and sustainable for both government, labor and the South African public in general,” Naledi Pandor, the acting minister of public service and administration, said in a statement on Monday.

The state wage bill is projected to rise 7 percent to 587.1 billion rand ($47.9 billion) in the current fiscal year, and by a similar increase over each of the next two years, the budget shows. Personnel costs account for about 35.2 percent of total government spending.

“An above-inflation public-sector wage deal would set the tone for other sectors of the economy and could lead to inflationary pressures,” Mpho Tsebe, an analyst at Johannesburg-based Rand Merchant bank, said in a note to clients.

Containing the salary bill will be essential if the Treasury is to meet its target of trimming the budget deficit to 3.6 percent of gross domestic product in the year through March 2019, from 4.3 percent this fiscal year, according to Mike Schussler, the chief economist at research group Economists.co.za.

Critical Test

“Civil servants constitute about 21 percent of the formal sector workforce,” he said by phone. “In the third quarter of last year, 48.9 percent of all tax revenue that was collected was spent on wages. They are not overworked and underpaid.”

A former labor union leader, Ramaphosa, 65, has not commented directly on the pay impasse, although he has said the civil service must become more efficient and that the configuration and size of national government departments must be reviewed.

“The current round of wage negotiations represents a critical test for the Ramaphosa administration,” Gareth van Onselen and Tamara Dimant, researchers at the Johannesburg-based Institute of Race Relations, said in a report last month. “How much remuneration grows, and how much it grows above inflation, will be a determining factor in his ability to turn the economy itself around. Likewise, it will reveal just how much political capital and influence Ramaphosa wields.”

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