Economic impact of Transnet strike mounting

The economic impact of the Transnet strike is mounting, with just mining losing about R815 million in foregone revenue daily. The strike is now in its twelfth day and after unions rejected the suggested wage increase of 6% on the weekend, it seems that it will not end soon.

The Bureau for Economic Research (BER) at Stellenbosch University says the Minerals Council estimates that the strike is costing bulk mineral exporters R815 million in foregone revenue per day because they cannot use rail to load 357 000 tonnes of iron ore, coal, chrome, ferrochrome and manganese onto ships daily.

In addition, the BER says, the offloading of crucial imports, including medical supplies and diesel, has come to a standstill, raising anxiety about shortages the longer the industrial action continues.

“Based on weekend reports, even the union leadership acknowledges that it is imperative for the strike to end as soon as possible, suggesting a resolution may be in sight. If this is brought about by a multi-year deal of above-inflation wage increases, the end of the strike will also have consequences,” Lisette Ijssel de Schepper, editor of BER Weekly, says.

She warns that the BER is not just referring to the direct hit to Transnet’s embattled finances, but also how the South African Reserve Bank (Sarb) will view such a settlement.

Weekend reports quote finance minister Enoch Godongwana suggesting that Transnet will receive financial assistance from government. He will provide the details in next week’s Medium Term Budget Policy Statement (MTBPS).

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Effect of Transnet strike on Reserve Bank decisions

The BER says the Sarb will of course not respond to a single wage deal, a pattern is emerging of entities signing multi-year wage deals at percentages above the expected rate of inflation, presumably to ensure future stability of operations, as well as in response to increased living costs.

“Assuming that affordability criteria are met, this seems rational from an individual firm perspective. However, especially if not accompanied by productivity improvements, it will raise alarm bells at the Sarb, which is focused on managing inflation expectations down to 4.5% and lower, over time.”

The BER says It now seems possible and even likely that Transnet will offer workers a multi-year wage deal that could reach increases of 6% in future years and notes that the Automobile Manufacturers Association went even further last week when it agreed to a three-year deal that will see wages increase by 8.5% this year, followed by a likely 7% rise in the following two years.

Mining firm DRDGold also reached agreement on a three-year wage deal well above targeted inflation and the BER says along with sustained US dollar strength, which means that the rand could soon test R18.50/$ amid further near-term aggressive US central bank policy rate hikes, the recent elevated wage settlements in South Africa mean that the Sarb is now expected to hike the policy interest rate by another 75 basis points at its November monetary policy meeting.

The BER says the Transnet strike and any implementation of abrupt and prolonged periods of load shedding are expected to hold back output in the manufacturing and mining sectors as well in the fourth quarter of the year.

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