Up to all of us to keep centre intact
RESERVE Bank governor Gill Marcus warned this week that the rand remained vulnerable to “changing risk perceptions” based on the state of global financial markets and domestic issues, and already she has been proved right. The rand has been weakening steadily on the back of a raft of bad news, despite a strong flow of foreign funds into the bond market as a result of SA’s inclusion in the influential Citi World Government Bond Index from Monday.
The Bank estimates that about R84bn of portfolio flows have entered SA since the beginning of the year, largely in anticipation of SA’s inclusion in the index, and this has naturally buoyed the currency. But these flows are already starting to ease and normal supply and demand factors will soon be the primary driver of bond yields and the rand-dollar exchange rate.
The danger to the economy is that without the support of unsentimental portfolio flows, the buildup of negative sentiment towards SA as an investment destination could result in a sharply weaker currency and a spike in inflation, which could force the Bank to raise interest rates. This might help to keep a lid on prices but would clearly be undesirable from the point of view of the economy, which is struggling to maintain a pedestrian growth rate as it is. It is in nobody’s best interests for Ms Marcus and her monetary policy committee to be placed in a position where they have to choose between inflation and stagnation.
Some factors influencing the rand are beyond our control. But it is imperative that SA — not just the government but all South Africans — do all in their power to lean against the ill wind and ensure that domestic factors are not contributing to negative perceptions of SA.
Unfortunately, the opposite is occurring. Mining executives report that production losses due to the spate of wildcat strikes are causing investors to offload mining shares, fearing that the centre will not hold. Indeed, the centre is looking decidedly wobbly — in addition to the breakdown of the collective bargaining system, uncertainty over the leadership of the ruling party is preventing anyone from showing the kind of decisive political leadership required to see the country through this rough patch.
The spread of wildcat strike action from the platinum sector to other parts of the mining industry is bad enough. But the fact that other, unrelated sectors of the economy are now also being hamstrung by unprotected strikes motivated in large part by opportunism should set off warning lights. A modern economy cannot function without respect for the rule of law, including collective wage agreements.
Gold Fields CEO Nick Holland is therefore correct to put his foot down and declare the existing twoyear wage agreement sacrosanct. And it is encouraging that the Chamber of Mines has clarified its decision to enter into negotiations with the National Union of Mineworkers (NUM), saying this applies only to the task team set up to look into rock-drillers’ relative wage levels and living conditions, and should not be interpreted to imply that all mineworkers are in line for an early wage increase.
Mining unions are caught between a rock and a hard place. They are going along with workers’ outrageous demands in a desperate bid to regain credibility with their constituency after being shunned when the strikes began. But they have been around long enough to know that negotiations always involve a trade-off, and increases of several times the rate of inflation will inevitably mean job losses, and very likely more shaft closures.
NUM general secretary Frans Baloyi revealed his discomfort with the way matters are progressing when he warned that strike action was a “powerful tool of last resort” and should not be abused since “we don’t want a victory of today to be a permanent defeat of tomorrow”. He is right, but needs to join with mine executives and the government in warning workers in no uncertain terms that they are now cutting off their nose to spite their face.