A nearly six-week wildcat strike at the Lonmin platinum mine has sent a shockwave through South Africa’s all-important mining sector and ignited violence that led to 45 deaths. A wage agreement was reached at Lonmin, ending the strike and raising salaries by between 11 and 22%. The Lonmin strike led to a spillover of illegal actions to multiple platinum and gold mines and made some producers suspend operations. Militant pay-demands with workers ignoring traditional negotiation mechanisms are spreading as the National Union of Mineworkers (NUM) is ever more portrayed as greedy and out of touch with workers. The mining industry in South Africa is worried that a precedent was set with the Lonmin wage agreement and that eventually general wage costs will grow substantially.

Impact on country risk

At times of soaring uncompetitive mining costs and South Africa’s problematic exposure to the euro crisis, the unrest is expected to affect the growth prospects and damage the investor sentiment, adding to concerns over policy uncertainty and mounting social pressure. Moreover, wage hikes could stoke higher inflation and unable the Central Bank to cut interest rates in order to boost sluggish economic growth. President Zuma’s handling of the crisis was intensely criticized and triggered an anti-Zuma campaign dividing the ANC and raising uncertainty on the December leadership election outcome.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com