Photo: AP Photo/Themba Hadebe
The deadliest protests South Africa has seen since the end of the apartheid era have continued to spread across the country today.One of South Africa’s largest platinum producers, Lonmin PLC, reported this morning that only three per cent of miners showed up to work, on average, across all shafts this morning.
44 people have died in the dispute to date, and experts are unsure
To better the understand causes of the strikes and their political and socio-economic ramifications, Business Insider spoke with University of Cape Town Professor Professor John Luiz via email. Dr. Luiz is professor at UCT’s Graduate School of Business, and specialises in political economy and business, society, and government economics of emerging Markets.
Business Insider: How far do you think the strikes will spread? Do you see an end in sight?
John Luiz: The strikes are symptomatic of a larger more systemic fault line within the South African political economy and thus we are likely to see this continue sporadically until the structural issues are addressed. In some respects this resembles the municipal protests around service delivery which have hit South African towns in recent years. There is growing frustration that the rate of improvement in people’s lives does not measure up to their expectation of what the post apartheid scenario would deliver.
In the short term we are likely to see the strikes spread and their longevity will depend upon how both business and government reacts to this. If they do so constructively then I think workers will find themselves under pressure to return to work given the lack of pay over an extended period of time. However, the larger issue is that business is going to find itself increasingly dealing with frustration and often unrealistic demands which may actually reflect something much larger than their immediate work circumstances. This places business in a very tricky position as it cannot be dealt with purely at the labour relations level.
BI: Despite government intervention, the strikes have become increasingly violent, unions have fractured, and negotiations seem stalled. What effect do you think the strikes are having on government legitimacy? Have they highlighted efficacy of South Africa’s institutions, or is this a unique situation?
JL: South Africa has developed an extraordinary set of institutions and these are protected by a very progressive constitution. They have held up remarkably well given the strain they have been put under by South Africa’s political economy. However, the perceived lack of government delivery in recent years has raised questions about the political compromise which was struck in the early days of the Mandela administration. Has this imposed constraints on the ability of government to deliver benefits to the mass population? I firmly believe that the answer is negative.
The problem in SA is not one brought about by the constitution; it is a combination of incompetence, patronage and an unimaginative, very traditional economic model. This has had an impact on government legitimacy and led to populist tirades. The current strikes have been exploited for political gain by these populists and we are likely to see this continue as we move towards the ANC’s elective conference in December where the future leadership is to be decided. Keep in mind that in SA we have a strange situation where political power is effectively exercised by a small fraction of the population (a few thousand) who have position within the dominant ruling party. National elections are presently not were power is decided but rather within the dominant party itself and thus this should be expected to be a time of tension. We are seeing similar tensions in China as they approach their leadership transition.BI: While de jure segregation is now outlawed in South Africa, the society is still somewhat splintered along socio-economic lines. To what extent are the strikes remnants of pre-apartheid era problems?
JL: South Africa’s economic inequality shows up repeatedly as amongst the worst in the world. In addition it has actually worsened in the past decade. This is not sustainable and will increasingly put pressure on government, labour and business to come up with a long term social contract for SA. It is not an issue that can only be addressed by government and requires all stakeholders to put aside their narrow interests and to focus on a more sustainable socio-economic model. For business and labour, it cannot be business as usual and requires a very different mindset and we are currently not anywhere close to reaching such a grand consensus.
BI: What do you think the overall economic effect of the strike is now, and will be when it’s all said and done?
JL: The effect of the strike at the moment is contained within the mining sector. What it is doing is further hampering a sector which has been in decline for decades for various reasons. SA did not effectively participate in the commodity boom because of issues related to policy uncertainty and often regressive mining business models. If the strikes persist, there is a danger of it becoming more widespread and cutting across sectors. If this were to happen then it would signal very clearly that the strikes have a broader political agenda. The consequences of that would be more severe.
BI: South Africa is one of Africa’s largest economies, driven very much in part by the natural resources derived from the mines where the workers are striking. How do you think labour unrest will affect the price of commodities, and how could this affect the rest of the South African economy?
JL: At the moment the effect on commodity prices has not been realised because it is happening during a downturn in the world economy and a slump in the demand for commodities. But again if it persists then there would be pressure on commodity prices. SA is a major player in platinum, coal, iron ore, uranium and even in gold (although less so). Although the direct contribution of mining to the SA economy is now less than 10% of GDP, it is still a major earner of foreign exchange and its indirect impact is still substantial. But the bigger issue is what these strikes potentially reflect in terms of the growing dissatisfaction with the political economy of SA.
“…the bigger issue is what these strikes potentially reflect in terms of the growing dissatisfaction with the political economy of SA.”
BI: Have the strikes hampered the confidence of international investors, and the amount of FDI that has come in? What are some repercussions of this? Could this drastically affect the overall economy of South Africa?
JL: Violent strikes of this nature are always a concern to international investors and particularly so in emerging countries given their track records of instability. However, SA has managed its macroeconomy well and this provides a buffer for investors. Thus far it has not affected the stock market nor the currency and this indicates that investors are willing to give the country some space to find solutions. But if it spreads then we can expect some capital flight.
BI: What do you think would be an ideal outcome?
JL: The ideal outcome is a long term social contract which brings business, government and labour together in an attempt to address the structural deficiencies in SA’s political economy. This will not be easy given SA’s past and the antagonistic nature of relations between these stakeholders. But it is important to remember that many of these issues are not unique to SA and other emerging markets find themselves in similar predicaments. This also requires international investors to real ise that they need to think about risk differently in emerging countries. These high growth economies have baggage and often high levels of inequality which exposes the unsustainable nature of their economic models. Different countries will deal with this differently — just look at how Latin American countries have done so ranging from nationalization in Venezuela and more recently in Argentine; to progressive social spending and industrial policy in Brazil. The important thing is to find a basis for long term growth, policy certainty and social stability.
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