State Wrestles With 7% Growth Vision as Strike Strangles South Africa

by Aug 20, 2010South Africa: Public Sector Strike 2010, Special Features

Government decries disruption of schools and hospitals by strikers

By Linda Ensor and Hopewell Radebe

20 August 2010

The government yesterday warned public sector trade unions engaged in an indefinite strike that excessive wage demands would harm the economy and jeopardise growth.

The government is busy devising a labour-absorbing economic growth strategy, and hopes that business and labour will commit themselves to it later this year.

But doing so would require organised labour to consider the job needs of the economy as a whole and retreat from its high wage demands, Cabinet spokesman Themba Maseko suggested yesterday.

Already, labour has foiled government plans to promote youth employment through a wage subsidy scheme.

Trade unions have rejected the idea on the grounds that it would create a two-tier labour market.

Referring to the demand by striking public service trade unions for an annual salary increase of 8,6% — higher than inflation — Mr Maseko said the government could not manage its budget in a way that simply favoured the employed at the expense of the poor and jobless.

It was, however, sensitive to the plight of public servants.

The economic growth strategy to be thrashed out with business and labour is likely to set demanding job creation targets.

As Finance Minister Pravin Gordhan said in a speech to mark the release of the Land Bank’s financial results yesterday, the economy would have to grow 7% a year for the next few decades to create jobs and reduce poverty.

“The big challenge is that if we want a very different, more prosperous and a more sustainable future for all South Africans, then we must set our ambition for growth at 7% a year over the next 20- to 30-year period.

“All we’ve achieved is about 5%. We want a sustainable economy that will create jobs and reduce poverty,” Mr Gordhan said. “Economic growth is essential. But what is crucial in SA is inclusive economic growth — growth which creates jobs, growth which reduces poverty and creates opportunities, particularly for young people in SA.”

Mr Gordhan said the economy was well into modest recovery from the recession, with growth for the second quarter expected to be at least 3% compared with the 4,6% in the first quarter.

Mr Maseko said at a post-Cabinet media briefing that the R5bn unplanned expenditure arising from the government’s higher than expected wage offer of 7% would place a “huge burden” on the fiscus. It would result in a carry-through effect of a further R2,7bn in the 2011-12 financial year. Immediate budget cuts would be necessary as well as austerity measures next year.

“The current wage settlements in the country both in the public and private sectors are going to be very negative for the economy. They will have an inflationary effect which will end up affecting ordinary citizens,” Mr Maseko said.

These kind of settlements would have to come to an end otherwise they would lead to more job losses rather than assist the government in making a dent in the high rate of unemployment, for example by hiring more teachers and nurses.

“Government is of the view that future salary negotiations must take into account other important policy considerations such as the need to link wage growth to productivity, assessment of unit costs of government labour in relation to trends in the rest of the economy, and most importantly the impact of a high wage bill on employment policy.

“Such a discussion must also address the income gap in the public and private sectors,” Mr Maseko said.

The Cabinet also unreservedly condemned “the violence, intimidation and acts bordering on thuggery and criminality” that had characterised the strike in parts of the country. “The disruption of classes and health facilities is totally unacceptable and will not be tolerated,” he said.

“The defence force will be on standby to provide assistance in emergency and life-threatening situations such as providing urgently needed medical care. The impact of strike is going to be huge. We are particularly worried about key sectors such as health and education,” Mr Maseko said.

The Cabinet was disappointed by labour’s rejection of its offer. It hoped trade union leaders would accept that the government had given as much as it could afford and would encourage workers to return to work in the next few days. The government’s offer will be on the table for the required period of 21 days. If labour failed to sign it, the government would implement it regardless and the dispute would be taken through the dispute resolution processes.

Mr Gordhan said global economic prospects were “very uncertain”. “China’s growth is slowing down, but it is still 10%; the US is sending mixed signals and, apart from Germany, the euro zone (our big trading partner) will probably be mired in low growth for some time to come.

“In its latest update of the global economic outlook, the International Monetary Fund revised its growth forecast for 2010 upwards to 4,6%. That’s a good sign, but a lot of that 4,6% will come from emerging markets. There’s a fundamental rebalancing happening in the global economy. The drivers of growth for the last 10 years are not going to the drivers of growth for the next 10 years,” he said.

Mr Gordhan said risks to growth had risen sharply as a result of considerable volatility in monthly economic data, both in SA and in the rest of the world, and increased turbulence in financial markets.

He said it was important to remain focused on getting the economy on to a higher and much more sustainable growth trajectory. “If we are to grow faster, we must create an environment that is favourable to domestic and foreign investment. We are all aware that we must cut red tape; we must lower the cost of doing business in SA, and deliver quality public services for our citizens.”

Source: Business Day – http://www.businessday.co.za/

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