It’s tempting to view the battle between small and big firms in the metals and engineering industry as a fight between David and Goliath, but it’s more complex than that.
Simplistically, small firms have waged a gutsy fight over the past decade to evade the generous collective wage agreements agreed to between big unions and big firms in the sector. And they’ve repeatedly won in court — until the latest wage round.
With the small-firm sector finally having lost, and now being compelled by law to pay an entry-level wage of R55.67 an hour against the current national minimum of R23.19, the gloves have really come off. The matter is likely to go all the way to the Constitutional Court, with both sides equally resolute about defending their respective corners, and the survival of many firms at stake.
Those opposed — about 80% of firms in the industry — say the move will wipe out entry-level jobs and SMEs, worsen industry concentration and make it even less competitive. As it is, the industry shed 140,000 jobs in the 10 years before Covid.
The two other most expensive sectors in South Africa under bargaining councils are the road freight sector, which has an entry-level wage of R39, and the motor industry, where it is R32.63 for a general worker. So R55.67 is extremely high, even by South African standards.
Moreover, once all the other bargaining council benefits (such as pension, unemployment insurance, compensation and sick fund contributions) are added, the total cost-to-company for an entry-level employee in the steel and engineering sector will rise to R78 an hour.
The International Monetary Fund estimated in 2014 that the minimum wage for a 19-year-old South African was more than twice the average wage of a similar worker in comparable countries which were creating jobs rapidly.
Those in favour of the new July 2021-June 2024 wage agreement — about 20% of firms in the industry — emphasise that it includes a phase-in schedule. This allows firms that can demonstrate “clear evidence of financial difficulties” to pay only 60% of the R55.67 (R29.73 an hour) until June 2024.
After 80 years of collective bargaining, in which business has sought to avoid strikes at all costs, the metals and engineering sector has backed itself into an impossible corner
— What it means:
There is also a provision for firms employing fewer than 10 people and which have been in existence for less than three years to be exempt if they can show that this will enable them to retain or create jobs.
And the agreement includes a “peace clause” that prohibits all five trade union signatories — including the huge National Union of Metalworkers of South Africa (Numsa) — from undertaking any form of industrial action on matters covered by the agreement while it is in effect.
Big business, it would seem, is prepared to pay a hefty wage premium for industrial peace. Given the militancy of South Africa’s trade unions, it looks like a reasonable deal — if you can afford it. But the minnows are having none of it.
The battle comes down to a clash between the dominant employer body, the Steel & Engineering Industries Federation of Southern Africa (Seifsa), which represents 175,000 workers but only 11% of firms, and the National Employers Association of South Africa (Neasa), which represents only 60,000 workers but roughly 17% of firms.
While Neasa claims to represent mostly SMEs, Seifsa denies that it represents mainly big firms. However, simple arithmetic shows that Neasa firms employ 36 workers on average, while the average Seifsa firm employs 159.
The broader Neasa camp represents about 80% of firms and the Seifsa camp, roughly 20%. However, bargaining councils are interested only in the number of workers a firm represents, and the Seifsa camp claims to represent more than 70% of the industry’s workforce
That means the sector’s latest wage agreement (which awards wage increases of 5%-6% each year for the next three years) was passed by a landslide. And after Neasa failed in its court bid to stop employment & labour minister Thulas Nxesi from extending it to nonparties, it became binding on all the sector’s firms from October 17.
Since 2011, Neasa has spent R31m fighting the extension of collective bargaining agreements and, until this year, has always won on technicalities.
We should be in the business of employment and economic growth and not in the business of employer survival
— Jaco Swart
This is where it gets strange. Neasa believes its members are excluded from the phase-in regime because the agreement says it is available only to “signatories”. As the Neasa bloc refused to sign the agreement, it interprets this to mean that its members are excluded, even though the agreement has since been extended to all nonparties, making them parties to it.
In Neasa’s view, this makes the phase-in arrangement discriminatory, which is prohibited by the Labour Relations Act. This will form part of the basis of the body’s next court challenge, should it succeed in obtaining leave to appeal from the Labour Appeal Court.
Seifsa CEO Lucio Trentini, however, believes Neasa’s interpretation is “factually incorrect”.
“This is a convenient narrative Neasa continues to peddle for its failure to come up with a better deal,” he says.
But even if Neasa members could access the phase-in wage rates, Neasa national manager Jaco Swart decries the exemptions process, which fails to define what constitutes financial distress.
Swart, who sits on the Gauteng regional council that determines exemptions for that region, says exemption applications from firms don’t succeed unless they’re already close to bankruptcy. Moreover, small-business exemption applications are rarely received, as the industry has essentially wiped out small firms. And there are few firms younger than three years old because the industry’s generous benefits discourage new entrants.
Published research by University of Cape Town economics professor Haroon Bhorat shows that the extension of a central bargaining agreement adds 10% to SMEs’ wage rates on average.
“This is not insignificant”, he says. “It destroys jobs and is anticompetitive because it confers a cost advantage on big firms and so is destructive of inclusive growth. It is also unsustainable because it results in firm closures, further increasing the concentration of the industry and further reducing competition.”
He believes the best solution would be to provide a blanket exclusion for SMEs. In fact, a proposal to exempt SMEs from bargaining council agreements in their first five years of existence has quietly been made by the department of employment & labour and is now before Nedlac.
Employment & labour director-general Thobile Lamati tells the FM that the department was motivated by the concern that South Africa’s collective bargaining dispensation is bidding up wages in a way that is killing SMEs and preventing the emergence of new firms.
Bhorat fears the unions will never go for it, but nevertheless says: “That’s the argument that has to be had.”
If I’d have said to Irvin Jim ‘Just give Neasa a blank cheque, a free ride’, he’d have laughed at me
— Lucio Trentini
Neasa expects 20%-30% of employers in the industry to close over the next two years unless they can obtain exemptions from the new wage rates. If the exemption process were fast, automated and automatic, Neasa members may even have signed the main agreement, according to Swart.
“But, as it currently stands, it doesn’t benefit you unless you’re in financial distress,” he says. “However, we should be in the business of employment and economic growth and not in the business of employer survival. These excessive conditions of employment aren’t conducive to growth. We need healthy, not limping, businesses.”
In any event, why should employers phase into a “draconian” wage that they didn’t agree to and cannot afford, he asks. “If we had signed the agreement our members would have slaughtered us … and we would’ve lost the ability to challenge it in court.”
Even Trentini finds it difficult to defend an entry-level wage of R55 an hour. He concedes this will not entice employers to hire more staff but emphasises that the industry got to this point over 80 years of central bargaining.
“It is a problem,” he concedes, “and if I had a magic wand, I would halve it. But how do we do it without torpedoing South Africa back to the three- to four-week strike which cost the industry billions?
“I’m not saying that entry-level wages would’ve been lower if we’d had firm-level bargaining. I don’t know, but can you imagine the constant industry unrest in the air if we had plant-level bargaining with a large national union like Numsa?”
The peace clause, he says, “guarantees certainty, stability and industrial peace — three elements that are critical for us”. And, given that he regards Numsa’s Irvin Jim as one of South Africa’s “most radical and difficult” negotiators, he feels Seifsa “should be congratulated” for pulling off the agreement.
But why impose such an onerous exemptions process on firms?
“If I’d have said to Irvin Jim ‘Just give Neasa a blank cheque, a free ride’, he’d have laughed at me,” says Trentini.
“We’ve tried our best. Don’t think we’ve just rolled over. It’s tough but our detractors must understand that for central bargaining negotiations to take place you must be at the table, not standing outside the room complaining.”
Vinco Steel, a 21-year-old firm in the Western Cape town of Paarl , is proud that it trained up its top two welders from being a forklift driver and a security guard. Their wages are now on
par with the highest in the industry.
“They were provided with an opportunity to learn, be trained and become accustomed to a work environment,” says CEO Nicolaas Loubser. “Not only has this saved them from dire poverty, but [it has] also provided them with hope for the future.”
However, given industry conditions, the firm has not made a profit for 30 months. Loubser says
a minimum wage of R78 (cost to company) will “ruin the future”, not only of SMEs, but especially of inexperienced jobseekers.
“I cannot overemphasise the important role that an affordable minimum wage plays in achieving job creation,” he says.
— Counting the cost
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