SA economy faces more storms as labour and government don’t see eye to eye

South Africa faces some stormy economic weather, are you ready for the economic storm. Picture: iStock
South Africa faces some stormy economic weather, are you ready for the economic storm. Picture: iStock

The South African economy took hit after hit on Tuesday as Statistics SA announced that the country’s gross domestic product (GDP) contracted by 1.4% in the fourth quarter of 2019, pushing the country into a technical recession.

To compound matters, trade union federation Cosatu – which slammed government’s intention to renege on their three-year remuneration deal reached in 2018 – could not reach consensus with government, business and civil society during Monday’s National Economic Development and Labour Council (Nedlac) meeting at the ANC’s extended national working committee sitting.

This comes after ratings agency Moody’s Investors Service had already warned that the economic forecasts contained in Finance Minister Tito Mboweni’s 2020 budget could be rendered uncertain by the labour movement’s reaction and expected engagements with the governing party, which could lead to President Cyril Ramaphosa’s back-tracking on the proposed public wage bill reductions.

Read: Will Cyril Ramaphosa blink on wage bill after pressure from Cosatu? 

Should this be the case, rating agencies stand to further revise the outlook on South Africa’s credit worthiness.

Not withstanding government spending being at “its highest level since the start of democracy” and “well above what the economy could afford”, Cosatu refused to engage with government and its plan to curb the public sector wage bill, saying the matter should only be negotiated at the Public Service Coordinating Bargaining Council (PSCBC) where the trade union – along with other labour unions – have already rejected government’s planned cuts on the bill.

Should government continue to honour the existing agreement in terms of the wage bill agreement reached in 2018, it “will be borrowing in excess of R375 billion, or 6.8% of gross domestic product, to maintain current spending levels”.

However, Cosatu’s parliamentary co-ordinator Matthew Parks told City Press that “there were no ongoing discussions on the wage bill as public service wage bills fall under the PSCBC and not any other structure”.

The federation – along with the SA Communist Party (SACP) – were invited to the ANC’s NWC on Monday to iron out pressing issues and have continued to react with anger to government’s attempts to unilaterally withdraw from a 2018 wage agreement and slash the public wage bill by R160 billion over the next three years.

A source who attended both meetings – the ANC’s NWC as well as the Nedlac meeting that sits every first Monday of the month – said “government and Cosatu continue to not see eye-to-eye on the wage bill matter and instead of having unproductive meetings decided to rather discuss yet another pressing issue of the ailing state-owned entities (SOEs).

At last month’s Nedlac meeting, a small team was selected and tasked with “enriching the proposal to rescue Eskom” and according to the source who spoke to City Press, feedback was given at the Nedlac meeting.

However, the meeting was marred by the proposal to cut the wage bill by Treasury, with unions apparently aggrieved by “how government on the one hand wants unions to allow it to use government employee funds to rescue Eskom and on the other hand turns around and inform the same workers that they want to cut their salaries”.

Treasury, the department of public service and administration and labour are now set to meet at the PSCBC for further negotiations before a solution is reached.

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