Pay talks put small firms in firing line

2010-09-10 00:00

MOTOR component manufacturers have warned that the current wage negotiations raise the risk of permanently crippling the viability of manufacturing facilities if the settlement award greatly exceeds the inflation rate.

Manufacturers accept that increases in wages are an acceptable cost of doing business, but say this must be in the context of prevailing economic and market conditions.

The current trend of collective bargaining has placed the small manufacturer at the biggest disadvantage. In South Africa, conditions are increasingly stacked against small business and have been at the forefront of job destruction in this industry.

The combination of a 15% wage increase and a 10% shrinking of the working week will be devastating, particularly for small business.

The strength of the rand combined with the demands on the table implies a dollar cost increase in excess of 40%. This is industrial suicide given the global weakness and excess capacity.

An excessive wage settlement does not create extra money. The resources have to be extracted through job shedding and offshore sourcing. This implies that the demands are creating victims, which will include the unemployed, who will face fewer job opportunities, and the customers, who will face higher product prices.

South Africa faces an increased risk of manufacturers sourcing production from more competitive countries. Industry investment will shrink as a consequence.

*Chris Hart is the chief economist of Investment Solutions.

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