Workers received the lowest-ever pay increase in 2018, according to the latest South African Reserve Bank (SARB) figures.
Lullu Krugel, PwC Strategy& chief economist for Africa, and Christie Viljoen, PwC Strategy& economist, analyse the numbers.
The SARB released its latest Quarterly Bulletin (available here) on June 27. The document reported that growth in remuneration paid to workers in the private and public sector declined from 5,5% year-on-year (y-o-y) in the third quarter of 2018 to 4,6% y-o-y in the fourth quarter.
This resulted in nominal remuneration paid to workers increasing by an average of just 4,7% during the 2018 calendar year – the lowest since the SARB started keeping records in 1971.
The central bank commented that this is indicative of the lack of wage pressure in the domestic economy.
Growth in nominal remuneration per public sector worker declined from 8,5% y-o-y in Q3 of 2018 to 6,9% y-o-y in the fourth quarter.
Strikingly, annual 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 (3% to 6%) in all of the public subsectors except for the 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.
Private sector remuneration per worker increased by 3,7% y-o-y in the fourth quarter compared to 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 to a figure of 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 to 1,2% in 2017. Another key issue is the pressure on corporate and small business profits due to the weak state of the economy.
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 – it is not good for the consumer economy.
A decline in real household expenditure contributed 0.5 percentage points to the 3,2% quarter-on-quarter (q-o-q) decline in gross domestic product during the first quarter of 2019. This reflects the worsening condition of household finances.
Furthermore, the slide in productivity growth sends a weak signal to potential investors: productivity increased by 3,4% last year on the world’s largest emerging markets.
Worker productivity was not on the agenda at President Cyril Ramaphosa’s State of the Nation Address (SONA) 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 job creation.
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 to 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.