Rand slumps as strikes spread

Oct 11, 2012

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As fears of strikes in the mining sector intensified, South Africa’s currency, the rand, slumped to a three-year low against the dollar. The industry has seen the worst unrest since the end of apartheid in 1994, with over 30 workers killed at platinum mines owned by Lonmin in August and strikes then hitting gold and iron-ore producers. Tensions could escalate: two mines have dismissed thousands of strikers.

What the commentators said

Strikes are nothing new in South Africa, said Andrew England in the FT, but the latest wave have been “shocking”, given the violence and intimidation involved and the workers’ radical demands. Workers are also “eschewing traditional labour resolution mechanisms and ignoring recognised unions”.

Thanks to recent events, “investors now recognise” that social problems, including an unemployment rate of 25% and a poverty rate of 48%, remain strongly entrenched and haven’t been tackled as effectively as everyone had hoped, said Martin Kingston, chief executive of Rothschild. “These chickens are coming home to roost.”

The immediate danger is that strikes could spread, especially after Lonmin’s workers eventually won pay hikes of 11%-22%. Already, almost 200,000 policeman and municipal workers have threatened to walk off the job.

Don’t count on the government to knock heads together, said Patrick McGroarty and Devon Maylie in The Wall Street Journal. Its “passive stance has frustrated parties on both sides of the divide”. It evidently doesn’t want to rock the boat because President Zuma will need the unions to be re-elected leader of the (ruling) African National Congress later this year.

But not only does it seem the government can’t prevent “a core industry from slipping into crisis”, said Devon Maylie, but all the labour unrest bodes ill for the economy too. After four years of fiscal stimulus, there is little scope for pervasive generous public-sector wage settlements.

Along with the weaker rand, big pay hikes could push up inflation, making the central bank reluctant to cut interest rates to prop up the slowing economy. No wonder foreign investors’ confidence is dwindling rapidly.

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