August 24, 2010 / 11:48 AM / 7 years ago

SCENARIOS-What next in South Africa public sector strike?

By Jon Herskovitz

JOHANNESBURG, Aug 30 (Reuters) - South African President Jacob Zuma has told government ministers to negotiate immediately to end a public sector pay strike and expects both them and unions to give ground, his spokesman said on Monday. [ID:nLDE67T05Y]

Teachers, healthcare workers, police, customs officials and clerks have been striking for nearly three weeks, seeking pay rises of more than double the inflation rate.

The following scenarios look at what may come next in the dispute:



GOVERNMENT BENDS TO UNIONS’ DEMANDS

* The call to talks indicates the government is prepared to better its offer to end the strike before its escalates. Analysts have said they expect a deal some time this week.

* Precedent of workers at state-owned firms getting wage increases of more than 8 percent bodes well for public sector workers receiving pay rises close to their demand of 8.6 percent. They also want 1,000 rand a month for housing.

* The government’s offer is a 7 percent wage rise and 700 rand a month for housing.

* Ruling African National Congress’ (ANC) goal to cut a deficit of 6.7 percent of GDP will come under pressure due to the need to assuage long-time union allies who feel they are owed favours after helping Jacob Zuma become president.

* Bond, stock and rand trading have mostly been unaffected by the strike but market players said that could change if there is no deal by the end of the week and if the strike intensifies, which could hurt local shares and dent sentiment.



TALKS FAIL

* Union leaders could extend and widen the strike if the government offer is not to their liking.

* A sympathy strike later this week by the nearly 2 million workers in COSATU affiliated unions could become an indefinite action that would damage major economic sectors such as mining, which accounts for 5 to 6 percent of GDP.

* The government would come under increased pressure to reach a deal to prevent any serious damage.

* The unions are also under pressure to reach a deal soon with rank and file feeling the pinch from losing out on pay by being off the job.



FUTURE BUDGET WOES

* The government will have greater difficulty trimming its yawning budget deficit due to its high wage bill, already a third of total spending. Any deal would cost an amount about equal to 1 to 2 percent of state spending, based on the government offer and the unions’ demands.

* State borrowing could rise, worrying ratings agencies and making it more costly to issue new debt.

* Real cost to the economy will be difficult to measure and will come from lost productivity and slower processing of government paperwork while the strike lasts. One prominent economist put the figure at about $150 million a day.



MENDING FENCES

* A deal would help Zuma and the ANC repair strained ties with the largest labour group COSATU, which said the strike and other difficulties have put their long-standing alliance on the verge of rupture.

* COSATU affiliated unions, who represent about 2 million workers in industries including mining, may still go ahead with a one-day strike planned for Thursday but that is not expected to have a major impact on the economy.

* A deal to end the strike would help Zuma at a major ANC policy-setting meeting later this month, with organised labour likely to take a far less hostile position than during the strike.



INVESTOR CONFIDENCE

* The strike has reminded investors of the dangers of doing business in South Africa; the problems of its rigid labour market and the political power of labour unions.

* The next area of concern is how much any deal will strain the budget and increase pressure on the government to raise taxes to help pay for it.








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