The South African Reserve Bank’s (SARB’s) latest quarterly bulletin showed that growth in remuneration paid to workers in the private and public sector had dropped from 5.5% year-on-year in the third quarter of 2018 to 4.6% year-on-year in the fourth quarter of 2018.
Consultancy PwC on Thursday released analysis by chief economist Lullu Krugel and economist Christie Viljoen, pointing out that the nominal remuneration paid to workers increased by just 4.7% during the 2018 calendar year.
This was the lowest level since the SARB started keeping records in 1971, indicating the lack of wage pressure in the domestic economy, the central bank said.
Growth in nominal remuneration per public sector worker decreased from 8.5% year-on-year in the third quarter of 2018 to 6.9% year-on-year in the fourth quarter. “Strikingly, yearly average remuneration growth per public sector worker virtually halved, from 10.7% in 2017 to 5.3% last year.
“Nonetheless, the increase in 2018 was higher than inflation – remuneration growth was above the midpoint of the inflation target range (between 3% and 6%) in all of the public subsectors except for public transport, storage and communication.
“Perennial above-inflation increases for civil servants has resulted in the public wage bill now accounting for 35% of fiscal spending,” said Krugel and Viljoen.
Private sector remuneration per worker increased by 3.7% year-on-year in the fourth quarter compared with 4.3% in the preceding three-month period. This resulted in private sector remuneration rising by an average of 4.5% last year – spot on the average consumer price inflation rate in 2018 – compared with 5% in 2017.
“Among other factors, the decline in remuneration growth can be explained by labour productivity in the formal non-agricultural sector increasing be only 0.3% last year, compared with 1.2% in 2017. Another key issue is the pressure on corporate and small business profits due to the weak state of the economy,” said PwC.
While the slowdown in private sector remuneration growth is positive for businesses, growth in nominal unit labour cost declined to an 11-year low in 2018, which is bad for the consumer economy.
PwC said a decline in real household expenditure contributed 0.5 percentage points to the 3.2% quarter-on-quarter decline in gross domestic product during the first quarter of this year. This reflects the worsening condition of household finances.
Further, the consultancy added that the slide in productivity growth sent a weak signal to potential investors: productivity increased by 3.4% last year in the world’s largest emerging markets.
Worker productivity was not on the agenda at President Cyril Ramaphosa’s State of the Nation Address on June 20.
“The issue of slow productivity growth is important for the President’s drive to see retailers stock more locally produced products in order to support local supply chains and [create jobs].
“Data from Statistics South Africa indicates that the domestic production inflation on, for example, food products, footwear, rubber and plastic products was higher in South Africa in the year ending March 2019, compared with the inflation on the import of such products.
“In a productivity-constrained economy, this could make imports more attractive to under-pressure consumers due to cost considerations,” noted Krugel and Viljoen.