South Africa eyes rating cut, seeks to calm labour market

Bloomberg

South Africa’s proposals to stabilize the labor market by introducing a national minimum wage and curtailing strike action have received mixed reviews, just days before ratings companies are scheduled to decide whether to downgrade the nation’s credit rating.
The country’s biggest labor union has dismissed the recommended minimum wage of 3,500 rand ($246) a month announced by Deputy President Cyril Ramaphosa on Sunday as “an insult.” Economists such as Christie Viljoen at KPMG LLP in Cape Town say many businesses will regard the pay level as too high, even as they welcome proposals for strike balloting and a limit on indefinite strikes.
“Local and foreign investors will welcome plans to make sure that our labor environment is less violent and less prone to elongated demands,” Viljoen said by phone. “I am not sure of this 3,500 rand. It will be very difficult to convince the majority of business organizations to accept the minimum wage at that level.”
Moody’s Investors Service and S&P Global Ratings, which are due to deliver revised assessments on the South Africa’s debt in the next two weeks, have cited labor upheaval, strikes and laws that discourage companies from hiring as potential risk factors to the country’s rating — issues the government says it’s intent on addressing. South Africa is ranked at the lowest investment grade level by S&P, while Moody’s rates its debt one level higher.
Restrictive Regulations
While South Africa was found to be the 47th-best place to do business out of 138 countries ranked in the World Economic Forum’s 2016-17 Global Competitiveness report, the efficiency of its labor markets ranked 97th. Business executives canvassed by the Geneva-based forum rated South Africa’s restrictive labor regulations as the second-most problematic factor for doing business in South Africa after government bureaucracy.
Ramaphosa said that a panel of experts commissioned by the National Economic Development and Labor Council, known as Nedlac, which promotes negotiations among unions, government and business, recommended the minimum wage to be phased in over two years.
He also cited broad agreement that unions should ballot their members before going on strike and that work stoppages shouldn’t be allowed to continue indefinitely.
For many businesses the minimum wage would signal a large rise in costs because many South Africans currently earn less than 3,500 rand a month, Viljoen said.
Some labor leaders see the proposed minimum wage as too low.
“We reject this with the contempt it deserves,” Irvin Jim, general-secretary of the 330,000-member National Union of Metalworkers of South Africa, or Numsa, said by phone. “It is a known fact in this country white workers are paid 20,000 rand and above, and the blacks are languishing between 3,700 and 4,500.”