Goldman Sachs tables rescue plan
Minimum wage, high-powered economic council proposed
URGENT action is required from the government, business and labour to stop South Africa sliding into a “low-growth trap” that would fail to address its high unemployment rate, persistent racial inequality and unmet social demands, Colin Coleman, Goldman Sachs MD for sub-Saharan Africa, has warned.
Concern that the economy may be on the brink of another recession was fuelled by official figures this week that showed output expanded by a tepid 0.7% in the third quarter of this year after contracting by 1.3% in the second — well below expectations.
The disappointing outcome prompted the global investment bank to revise its growth estimate for 2015 down to 1.2% from 2.3% at the start of the year — which would be the slowest pace since the 2009 recession and less than half of the economy’s 20-year average of 3.2%.
“We cannot have the cocktail of low growth, high unemployment and rising interest rates — it’s a very dangerous combination in this country,” said Coleman, who is also the head of Goldman Sachs’s investment banking division for the region.
“South Africa’s public sector policymakers and private sector actors must act absolutely with urgency to increase the pace and effectiveness of reforms to modernise the economy and address our weaknesses.”
Slowing Chinese growth and falling commodity prices would complicate the task, he said, but the government, business and labour could together tackle the country’s “own goals” — labour conflicts, low productivity, energy disruptions, weak public sector output and the failure of state-owned enterprises.
Coleman outlined a five-year interdependent package to achieve labour stability, alleviate youth unemployment, incentivise new small- and mediumsized enterprises and modernise state-owned enterprises. The programme would be fiscally neutral, with new spending covered by injecting private capital into the ailing stateowned enterprises — and possibly even selling small stakes for minority listings.
A cornerstone of his proposed labour stability package involves the introduction of a national minimum wage of between R3 500 and R4 500 a month to address the racial income inequality that has persisted since apartheid ended.
Labour Minister Mildred Oliphant said on Wednesday that Nedlac — the government, labour and business negotiating chamber — had nearly finished working out the details of how to implement a national minium wage, and was likely to complete the task next year.
Coleman said: “I would say that South Africa should get used to the idea of a national minimum wage being introduced within the next 12 to 18 months. It would have the positive effect of closing the racial income gap moderately, but quite significantly for the African and coloured population in general.”
He pointed out that this would remove a very important point of conflict between business and labour, but at the same time business should “rightfully” get a sustainable wage environment in which pay increases would be linked to productivity — a concession that labour unions have resisted.
“We need to bring the social partners back to a table that creates a rational, sustainable commercial environment in which the workers are improving their conditions — which they have done in the past 20 years — but at the same time society generates a return, and earnings are sustainable in corporations in an environment of extreme economic stress,” said Coleman.
Iraj Abedian, the CEO for Pan African Advisory Services, said he was sceptical that the tradeoff would happen successfully. Introducing a minimum wage in the face of abundant supply of labour and a declining economy would put people out of work, and intensify automation of jobs, he said.
For the idea of linking wage increases to productivity to fly, there needed to be a “deeper understanding” of the drivers of employment, growth and sustainability, he said.
And for a social pact to be reached and binding, all three players had to change their thinking: union leaders had to become productivity specialists; business leaders had to become social activists; and the government had to become balanced protectors of national interests, he said.
South Africa’s main business confidence index, released on Thursday by the Bureau for Economic Research and Rand Merchant Bank, provided another unpleasant surprise for the economy. Against expectations, it fell by two points to 36 in the fourth quarter — a five-year low.
Coleman said South Africa needed a more centrally driven cluster of economic ministers around a common objective of growth and development.
He described the National Development Plan as “a noble charter of economic objectives”, but said that what was needed was a plan “to know tomorrow what to do”.
He advocated the creation of an advisory economic council involving captains of industry, key economic ministers, trade unions and civil society leaders to “make things happen”.
We cannot have the cocktail of low growth, high unemployment and rising interest rates SA should get used to the idea of a national minimum wage introduced in the next 12 to 18 months