Numsa exit crucial for 2019 election - economist

Voting (File, Sapa)
Voting (File, Sapa)

Johannesburg - Cosatu’s expulsion of Numsa will start a train of events that will be a constant backdrop for markets between now and 2019, through the 2016 local elections, according to emerging markets economist Peter Attard Montalto of Nomura.   

A difficult few years could lie ahead for the SA labour market as unions increasingly compete for each other’s turf and to establish a new equilibrium, in his view.

At the same time a more fractured union body within the labour market will be a great positive for South Africa in the long run.

"The coalition of labour and employers on each side of the table has been detrimental to the labour market and to labour stability too, in our view. In the long run workers should have a choice between a politically connected union group under Cosatu and a more - at least notionally - worker-centric party," said Montalto.

"The most interesting thing, however, is that Numsa is known for being pragmatic in wage negotiations and having an understanding of productivity. If this advances to having a greater understanding and sympathy with the unemployed as well as its own members we would expect quite a sea-change."

Nomura's longstanding criticism of Cosatu is that it does not care about the level of unemployment, but instead only for its members – even if that exacerbates the problems of unemployment in the country.
This should be particularly obvious next year where there will be a large public sector wage round that Nomura thinks Cosatu will try to use it to re-establish wider popular support and regain ground following Numsa’s removal.

"A more contested political space may elicit investor fears about the long expected shift of the ANC to the left to try to take over the space Numsa is trying to occupy - though without the anti-corruption/rent-extraction platform - together with a greater determination to retain power," said Montalto.

"Such a shift, however, is not our baseline. We think the risks of that path are still balanced against those of a more benign muddle-through path, where - though still against a backdrop of low potential growth - the ANC shifts slightly to the right on macroeconomic policy and left on microeconomic policy in order to create optimal conditions for rent extraction for its increasingly powerful tenderpreneur/BEE/cadre-deployee faction of membership."

Numsa's expulsion 'inevitable'

Numsa's expulsion from Cosatu was inevitable and marks a crucial stepping stone on the road to the 2019 election, according to Montalto.

"Many questions remain and, while not immediately obvious, there are certainly some risks for investors. The consequently more fractured labour market will cause some tensions in the short to medium run, even if it is positive in the longer run," he said in a statement on Tuesday.

"We believe this event may prove to be a seminal political milestone in post-apartheid South Africa and an important stepping stone through the risk outlook to the local elections in 2016 and on to the national elections in 2019."

The Congress of South African Trade Unions was founded in 1985 and was a crucial element of the fight against apartheid, particularly in South Africa during the time that the ANC was banned, Montalto explained.

Its key development came after the unbanning of the ANC in 1990, when Cosatu, the SACP and the ANC formed the tripartite alliance and fought the 1994 election as one political movement under the ANC.

"After that the alliance deepened as, particularly under President Jacob Zuma, SACP and Cosatu leaders have increasingly taken senior ANC (and government) leadership positions.

"This has led to a view in some quarters (that we are partly sympathetic with) that the ANC is no longer a definable entity separate from the other alliance members," said Montalto.

While Cosatu had only 20 affiliates out of a total number of registered unions of 193, it has by far the largest share of union members at some 64.7% of total workers who are members of a union.

So why was NUMSA expelled?

The National Union of Metalworkers of South Africa represents the bulk of particularly skilled and semi-skilled workers in the manufacturing sector, and was for a long time Cosatu’s second biggest union after the NUM (National Union of Mine Workers).

However, with NUM’s sharp decline in popularity (to Amcu) after the disruption at Marikana in 2012, Numsa has been the largest union within Cosatu for the past two years, occupying around 15.5% of total membership.

According to Montalto, Numsa made a decision around a year ago to start building a wider coalition of the left to support workers, and this led it to the withdrawal of its support (and money) from the ANC through the elections in May of this year.

"We believe Numsa is in the process of setting up a political party to fight the local elections in 2016. Numsa has criticised Cosatu’s leadership for being too soft on the ANC in scandals like Nkandla and for being ineffective in standing up for the rights of workers in key economic policy battles – most notably around the youth wage subsidy, but also the mini budget and National Development Plan (NDP)," said Montalto.

"It has established a particularly hard-hitting and effective platform against (ineffectual) cadre deployment, BEE in the sense of narrow ownership by an elite, tenderpreneurship and corruption more generally in the ANC and by extension the current tripartite alliance structure and elements of Cosatu (often singling out the NUM)."

On top of this, among many other allegations, over the past year Numsa has begun recruiting in other sectors which is contrary to Cosatu’s constitution.
"Putting this all together it makes a lot of sense from Cosatu’s perspective to eject Numsa. However, the process has become messy as Numsa is backed by a wider coalition of some seven other unions within Cosatu," said Montalto.

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Why did Numsa want to stay in Cosatu and why did the ANC want them to stay?

Nomura believes Numsa wanted to stay within Cosatu because of the access to the wider power network within the ANC that it provides, and that it does have sympathisers within the ANC on the left of the party - and in the conservative centre-left that approved of its anti-corruption stance.

In addition, being within Cosatu gives it a larger platform - and some logistical advantages when it comes to wage negotiations.

"Ultimately, though, we believe, based on our interactions with Numsa, that the union fully understood, though it may not have publicly stated, that it would have to leave Cosatu eventually given the politically tangential path," said Montalto.

"The ANC, on the other hand, we think has attempted the reverse – to try to disrupt Numsa by keeping it within the tent. We also believe the ANC reasoned that a Numsa in Cosatu - even if not supporting the ANC - would have more members voting for the ANC in elections than a Numsa outside of Cosatu. Ultimately, though we believe NUMSA and Cosatu will part ways."

READ ANC reaction to Cosatu /Numsa split:
Mantashe: Numsa expulsion overall bad 
As it happened: There's still hope for Cosatu and Numsa - ANC
Mantashe: Don't blame Cosatu problems on ANC

The much more significant impact for Montalto would, however, come if Numsa’s seven other union followers were to follow it. So far, they have only announced that they will suspend their support for Cosatu pending decisions by their congresses of members on whether to leave or not. That should happen in the next few months and we suspect most of them will leave.
That would remove some 32% of Cosatu’s membership and crucially Cosatu’s overall share of unionised workers would fall to 44% from 65% currently.

"This is politically what the ANC fears: Cosatu (and by extension the ANC) would no longer be able to claim to speak for the 'majority of workers' - although this is a false claim, as only 25% of all workers are unionised in South Africa - it would still have resonance," said Montalto.

"Cosatu’s position in terms of policy within the tripartite alliance will remain weak in our view after this move, though we would not necessarily see much additional downside from the position it occupies at the moment."

At the same time Nomura has seen various estimates on a combined Numsa workers party/EFF getting around 10% to 15% at the local elections in 2016.

"Long-run polls regarding support for left-wing alternatives to the ANC put support at around 20%, but we think that is a little high for 2019 specifically – particularly if we assume the ANC may not lose votes per se but instead current non-voters may turn out to vote for a new left-wing party," said Montalto.

What of  Vavi?

While Zwelinzima Vavi, who is currently secretary general of Cosatu, is not currently formally aligned or a member of Numsa, he is seen as standing on very much the same platform in terms of criticism of the ANC and concerns about the direction of policy and some of the elements of Cosatu.

He has been increasingly sidelined and threatened with suspension on several occasions.

"A workers party with Numsa at its core would have much greater branding and pulling power if Zwelinzima Vavi were to agree to lead it, in our view. He is well known and respected among workers and the wider electorate," said Montalto.

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