ANALYSIS
Despite the view that public sector unions would not be able to pull off a strike of any consequence, the events of this week signal just how damaging full-blown industrial action could be to services and the economy.
The decision by civil servants to strike this week is the culmination of a number of political and economic factors that have arguably put workers — and the citizens they serve — in a no-win situation. The state, which continues to tighten the screws on the public sector, is also in an awkward position, as it risks the country’s social and economic conditions deteriorating even further.
Last month, Finance Minister Enoch Godongwana tabled a budget which once again flagged the risk posed to the state purse by an unwieldy public sector wage bill, which the government has attempted to rein in for some years. Teachers, doctors, nurses and police officers dominate public employment and thus the wage bill.
The treasury has budgeted for the compensation of state employees to grow by an annual average of 3.3% over the next three years. Over that same period, the treasury expects headline inflation to average about 5%.
‘Trade-offs’
Godongwana has repeatedly underlined that, if the state is forced to budge on wage spending, it will have to make difficult trade-offs.
A public-service wage agreement that exceeds the rate of growth of the compensation budget would require steps to contain overall compensation spending through stricter headcount management, the budget noted.
Last week, in written submissions to parliament on the 2023 fiscal framework, critics of the government’s policy of fiscal consolidation warned the budget would continue to gnaw at basic public services, having a disproportionate impact on the country’s poorest citizens.
In 2020, Godongwana’s predecessor Tito Mboweni announced his plan to reduce the public sector wage bill in an effort to squeeze some of the air out of the country’s ballooning debt and fiscal deficit. The sovereign’s ability to claw back its investment grade rating has hinged on the treasury making good on its promise to consolidate spending.
His proposal that public service wage increases be frozen for three years attracted the ire of unions, which had already signed a wage agreement with the government for the 2020-2021 financial year. Mboweni’s plan required revising clause 3.3 of a three-year wage deal struck in 2018.
But unions rejected government’s revised offer and, in June 2020, launched an application in the labour court seeking an order to enforce clause 3.3. The state launched a counter-application disputing the legality of the collective agreement and its enforcement.
The case eventually landed up in the constitutional court, which ruled in the government’s favour by declaring the 2018 wage agreement unlawful.
The apex court’s decision dealt a huge blow to public sector unions, which in the decade prior to 2020 had managed to amass some power within labour federation Cosatu, which itself enjoyed considerable pull as part of the ANC’s tripartite alliance.
However, the growing influence of the public sector unions was not so much about their increased ranks as about the steady erosion of South Africa’s industrial sector — a symptom of the country’s weak economic growth since the 2008 global financial crisis — which had left those unions struggling to grow their memberships. Stagnating economic growth since 2008 has been accompanied by low levels of private sector investment.
After Cosatu expelled the National Union of Metalworkers of South Africa, because of the union’s refusal to vote for the ANC, the National Education, Health and Allied Workers Union became the federation’s largest member.
Backsliding
Despite the rise of public sector unions, whatever gains they stood to make seemingly started to dry up as far back as 2012.
According to a comprehensive analysis of state spending by the Public Economy Project (PEP), there were three distinct phases of growth in public sector employment and average pay during the last decade. The PEP’s research was led by Michael Sachs, the former head of the treasury’s budget office.
Between 2002 and 2007, there were significant increases in the number of workers overall, and moderate improvements in real average pay for some sectors, with declines for others.
During the five years that followed, according to the PEP, headcount growth continued but was combined with substantial increases in real average pay — the result of the implementation of occupation specific dispensations (OSDs) — amounting to 6.7% real increase per annum, on average. The government implemented OSDs, which came with a unique revised salary structure, in an effort to stop nurses and teachers from moving overseas or to the private sector.
Between 2012 and 2019, however, headcounts across the public service stagnated and pay gains were far more moderate.
According to the PEP’s research, employment levels increased faster than the population served between 2002 and 2012, leading to a large increase in the ratio of potential users of public services to the number of workers. In healthcare, there were 722 employees per 100 000 users of the system in 2012, up from just 548 in 2002. Police service employment increased from 283 to 371 employees per 100 000 people.
These improvements were largely reversed after 2012. By 2021, the ratio of healthcare workers to users fell to 669.
This reversal was felt particularly strongly in policing, courts and prisons and defence, where employment to population ratios had fallen to their lowest levels ever by 2021, the PEP noted. By that year, the ratio of police to citizens fell to 297. The 2023 budget made steps towards correcting this, allocating an additional R7.8 billion to the police over the next three years to allow for the recruitment and training of 5 000 new officers annually.
Crisis
However, resources for key services will be reduced overall, according to the PEP’s submission on the 2023 budget. “This will have an adverse effect on the incomes of lower middle-income citizens and reduce the consumption basket of the poorest.”
According to the submission by the Institute for Economic Justice, there will be shortfalls — that is under-allocations compared to if allocations had risen in line with inflation — in spending on health, basic education and general public services over the next three years. Health will endure the largest shortfall of R47 billion, followed by education (R39 billion) and general public services (R37 billion).
Meanwhile, the cost of living crisis has added strength to calls by civil servants for higher pay. Unions have countered the government’s 4.7% wage offer, demanding an above-inflation 10% hike instead. Inflation averaged 6.9% in 2022.
In a February statement, striking unions said the 10% was justified against the realities. Consideration, they said, “also ought to be given to the many serious losses public servants have incurred in the past two financial years”. Workers are also demanding that vacant posts be filled.
High inflation, as well as the ratcheting up of interest rates, is set to weigh on growth in 2023, making for even more untenable economic conditions. After the economy contracted 1.3% in the fourth quarter of 2022, the country is staring down the barrel of a technical recession.
In January, when the South African Reserve Bank came out with its dire prognosis for the health of the country’s economy — forecasting GDP growth of just 0.3% in 2023 — it flagged more modest household spending as a contributing factor, alongside severe load-shedding and weak investment.
South Africa’s meagre growth is regarded a key credit weakness by ratings agencies, including S&P Global, which downgraded the country’s outlook from positive to stable this week. The ratings agency did, however, acknowledge the country’s improved fiscal position.
Here lies the dilemma at the heart of the government’s macroeconomic policy — inspiring robust and sustained economic growth is near impossible in an environment of constrained spending.
The government’s fiscal policy has, as Sachs has put it, caused a deep shock to public expenditure. Private and public investments have hit their lowest levels since 1994, stifling growth.
But, while the government has relied on the private sector to stimulate the economy, deteriorating public services — as well as the threat of civil unrest — hardly rouse investor confidence. This is the tightrope the government has chosen to walk and, as it falters, it risks a painful fall.
