Numsa strike could spell disaster for SA growth, investment outlook

30th June 2014

By: Leandi Kolver

Creamer Media Deputy Editor

  

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A metals and engineering sector strike on the scale that the National Union of Metalworkers of South Africa (Numsa) was planning could “spell disaster” for South Africa’s growth and investment outlook, especially in the second half of this year, analysts from investment banking firm BNP Paribas have cautioned.

BNP Paribas economist Jeffrey Schultz and political analyst Nic Borain said in a note that there were “large downside risks” to the bank’s current estimate that South Africa’s gross domestic product (GDP) growth would reach 1.9% this year.

Numsa last week said more than 220 000 of its members would embark on indefinite industrial action in the metals and engineering sector from July 1, demanding a one-year bargaining agreement with a wage increase of 12%.

BNP Paribas noted that the South African Reserve Bank (Sarb) calculated in its most recent quarterly bulletin that the impact of the loss of production in the platinum group metals sector, as a result of a five-month strike, in the first quarter, was 0.3% in real GDP.

The indirect effects of the strike revealed that annualised GDP growth would have been around 2.2 percentage points higher at 1.6%, as opposed to the headline 0.6% contraction.

Sarb also estimated that the current account deficit would have been around 0.3 percentage points lower than the 4.5% of GDP registered in the first quarter.

The analysts pointed out that, taking into account the impact of the platinum strike, which included about 70 000 workers, the negative impact of a strike by 220 000 workers in the metals and engineering sector could prove to be much greater.

“Furthermore, [the] strike action in the metals and engineering sector in gross value-add terms accounts for a much more sizable chunk of the local economy’s GDP composition than just the platinum industry,” they added.

The analysts said the breakdown of South Africa’s gross value-add by sector indicated a risk to around 40% of the production side of the economy.

“Add to this the massive risks to the country’s export base – being conservative, we roughly estimate such a strike has the ability to hinder at least a quarter of South Africa’s total export receipts – and the strong linkages between the manufacturing and mining sectors, and the outlook for the real economy in the second half of the year has the potential to be very damaging,” Schultz and Borain said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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