Public sector wages showdown: this time it’s got to be different

South Africa’s young democracy is heading for a showdown on the long-neglected issue of public servant productivity. Public sector wage talks have been one-way traffic for years. Government officials may huff and puff, but their political masters knows who voted them into power. Add in organised labour as the ruling party’s closest ally and it’s hardly a surprise the norm in SA has been for the State to grant above inflation wage increases that take no account of productivity or the lines of job seekers. But with ratings agencies paying close attention and the country’s debt a single downgrade from junk status, this time just has to be different. – AH

By Mike Cohen

(Bloomberg) — Two years after graduating as a teacher in Johannesburg, Norman Mashegoana moved back into his parents’ rural home because he was battling to support himself and his one-year-old daughter.

“After deductions I clear something like 13,700 rand ($1,143)” a month, Mashegoana, 24, said by phone on March 19 from Motlopunya village in South Africa’s northern Limpopo province, where he teaches English, technology and science. “At my age you don’t want to be staying with your parents. You need to go out there and be a man by yourself, but because of the financial constraints you have to make sacrifices.”

In a country with a 24 percent jobless rate and where most government workers rank in the top third of wage earners, Mashegoana’s plight is failing to find sympathy with a state struggling to curb its wage bill. Labor unions representing the 1.3 million-member public service are demanding a 10 percent pay increase this year, while the government has offered to raise by half of that, setting the stage for tense negotiations and possible strikes. The inflation rate was 3.9 percent in February.

State personnel costs have surged 90 percent to 445.3 billion rand since 2009 and account for almost 36 percent of total government expenditure. State and municipal employees make up a quarter of South Africa’s non-farm payrolls, receive about 30 percent of the income and on average earn 31 percent more than other workers, according to Mike Schussler, chief economist at Johannesburg-based research group

Poor Quality

“Generally civil servants aren’t poor people,” Lungisa Fuzile, the director-general of the National Treasury, said in an interview in Cape Town on March 24 after a presentation to lawmakers. “They definitely aren’t underpaid.”

Workers in the platinum mining industry embarked on a five- month strike last year demanding that the basic monthly wages of the lowest-paid mineworkers be more than doubled to 12,500 rand.

South Africa’s state wage bill equated to 13.8 percent of gross domestic product in 2012, the fifth highest of 26 countries after Denmark, Iceland, Sweden and Finland, according to a report released last year by the Paris-based Organization for Economic Cooperation and Development. The ratio was 10.2 percent in the U.S. and 10.5 percent in the Euro area.

The spending isn’t reflected in the quality of government services. South Africa’s health and education system was ranked at 132 out of 144 countries on the World Economic Forum’s 2014-15 Global Competitiveness Report. The quality of its primary education was rated 133rd best, while the average life expectancy was at 129 on the list, due to one of the world’s biggest HIV prevalence rates.

Zuma Ally

While Finance Minister Nhlanhla Nene has called for wage restraint, political considerations have prevented the government from taking a hard line in pay talks in the past. The Congress of South African Trade Unions, or Cosatu, whose affiliate unions represent about 58 percent of government workers, is a member of the country’s ruling coalition and a close ally of President Jacob Zuma.

Public workers secured 7.5 percent increases in 2010 after embarking on a three-week strike, and in 2012 agreed to a three- year settlement that raised wages by 7 percent in the first year and inflation plus 1 percentage point for the next two years. Inflation has averaged 5.5 percent in the past three years.

Nkosana Dolopi, the general secretary of the South African Democratic Teachers Unions and a spokesman for Cosatu’s seven public servant unions, is adamant that state workers don’t earn enough.

Fiscal Gap

“We still can’t afford housing or to pay for our children’s education or health care,” Dolopi, who took home 12,000 rand a month after 20 years as a teacher before becoming a full-time unionist, said by phone from Johannesburg on March 19. “We can’t even afford transport to go to work. We want to improve our lives as public servants. We want a real wage increase.”

Nene’s budget on Feb. 25 provides for the wage bill to rise by an average 6.6 percent in each of the three years through March 2018. He has pledged to curb spending to help reduce the fiscal deficit to 2.5 percent of GDP in the year through March 2018 from an estimated 3.9 percent this year.

“The public-sector wage negotiations will play a very important role in determining whether the Ministry of Finance is able to keep the budget deficit in line with its projections,” Carmen Altenkirch, a director at Fitch Ratings, told reporters in Johannesburg on March 24. “If the wage increase turns out 2 percentage points higher than the 6.6 percent, then clearly that raises some concerns about the government’s ability to implement fiscal consolidation.”

Wage Review

Fitch rates South African debt at BBB, the second-lowest investment-grade level, with a negative outlook. Credit-rating downgrades by Standard & Poor’s and Moody’s Investors Service last year contributed to the rand declining 12 percent since the beginning of 2014. The currency fell 0.6 percent to 11.9255 per dollar as of 6 p.m. in Johannesburg on Thursday.

The Treasury plans to do a comprehensive compensation review this year in a bid to tighten control over public-sector wages. South Africa has more than 350 salary scales and 500 allowances for different categories of state workers, which are difficult to administer and create opportunities for irregular pay practises, it said in the February Budget Review.

Mashegoana doesn’t expect to ever earn enough as a teacher to support the quality of life he wants. He plans to become a lawyer once he’s worked for four years at a public school — payback to the government for funding his four-year university degree.

“By the time its month-end, you are really impatient” to get your salary, he said. “I really can’t cope on what I’m getting.”

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