Trade Unions taking a Dangerous Risk on Business

If there’s one thing the NUMSA strike highlights is the increasing tensions between themselves and rival union AMCU. NUMSA, an affiliate of COSATU which has for many years had its power untested,  who are 220 000 members strong are now taking to the picket lines to flex its muscles in a show of dominance to its rival.  Coming off the back of a 5 months prolonged strike in the platinum sector, this current metal industry strike does have a feel of politically showcasing to it.

The fact that NUMSA has 3 times the number of members in its union as AMCU and the expressed intention by NUMSA leadership to spread its wings and diversify wider into the mining sector only shows that the unionized labour market will become the battlefield for these unions to demonstrate their power.

But a cast of doubt has been thrown over the strike with many critics pointing to the current state of the economy and the difference between what the industry is offering and what the union is demanding being a mere R200.

 The last few days have seen vandalism and intimidation on a mass scale being handed out to people who aren’t even involved in the industry. The union certainly hasn’t won over the hearts of the general public even when they issue out statements which deny any involvement of their members in any form of hooliganism.

But ultimately who is bearing the costs of all the strike action which has been on-going since the beginning of the year. It’s safe to say that everyone is affected although it starts with one participant and gradually filters down to the other participants.  I want to focus on the business sector as I believe the strike action directly affects them.

The last few years there seems to have been a political vendetta against business to wash away any good they’ve contributed to the economy and brain wash workers to perceive them as the underlying cause to large inequalities. An “Us against Them” mentality has strained labour relations heavily and resulted in a large shrinkage of the labour force as many businesses partake in restructuring to avoid taking on employees.

Let’s take a closer look at some key economic data indicators within the business sector:

The South African Business Confidence Index is an indicator of the confidence with which business owners are experiencing presently in the economy. It takes into account past experiences and future expectations. It oscillates between 0 and 100 with a level of 0 indicate no confidence at all and 100 absolute optimism.   The 50 level marks a level of neutrality where business is neither confident nor uncertain about current conditions.

We can make a few conclusions from observations on the graph below. The first is in the last 20 years the index has been above and below 50. We have seen when there is a level above 50 the economy experienced expansionary phases and the when below recessionary phases.  This would imply that the index moves in line with the economy. 

The next observation we make is moving closer in where I have highlighted a specific point on the graph with 3 red arrows. These arrows indicate a point where the index attempted to break through the 50 level but the next reading subsequently fell below 50 again. 

The fact that the index has attempted this 3 times and failed on all 3 occasions could suggest there is some degree of uncertainty lying around the business sector. This uncertainty doesn’t paint a bright picture going forward.

In order for business to invest money into new ventures there would need to be a stable environment that supports growth and at the same time allows the business sufficient time to establish itself and construct a foundation where it can build on. 

The graph below would also suggest that the uncertainty created by work stoppages is not enabling business to participate in the job creation process by investing in new ventures and creating value with employees on board.  This is clearly restricting any further economic growth on macro level.  

The South African Manufacturing PMI is an index indicator which assesses the strength of the manufacturing sector. It takes into account new orders, inventories, manufacturing levels, and the labour market environment.  

The key level here is 50, like previously mentioned above 50 is expansion and below 50 is a contraction in the manufacturing sector. The chart below should give us some clarity of what has happened. 

The chart exhibits a period where the PMI remained above 50 for most of the time between 2000 and 2008, however what we've seen in the last 4 years is a period of range bound indication. It seems as if 55 capped expansion and on a few occasions the index dropping below 50.

What we notice presently is that there has been a breakout of this range which would suggest downside pressure.  We can conclude from this range that any expansion in the manufacturing sector has been very limited and hasn’t reached the levels seen pre financial crisis. This would suggest that the recovery has not materialized as hoped.

Bearing in mind that manufacturing is a large contributor of jobs in the economy, the outlook seems bleak which would beg the questions if the leaders of trade unions are standing for the right of the workers. 

 Trade unions are not doing themselves any favours by instituting mass strike action at this particular moment in the economy and forcing others to participate is irresponsible and unjust. An attitude of defiance is rather smug when one considers the deeper social issues which are at play. 

If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR