Read the full transcript

AL: Andrew Levy

TS: Tim Spira

• Intro

  AL: One thing is clear to me and that is that the world will not be the same after this. But in the longer term, I have very little doubt that the economy will prevail, that the inventive spirit of the entrepreneur will prevail, and that we will go on, albeit in a world that is slightly different to this one, and one that is not completely easy to envisage at this stage, but, in point of fact, something will emerge.

   

  TS: As we try and make sense of Covid-19’s impact on public health and the economy, the question of jobs is paramount. This is particularly true in South Africa where we entered the crisis with employment rates already testing historic lows. Investec Focus Radio caught up with one of South Africa’s foremost labour experts to discuss the immediate impact of the lockdown. We also asked whether this unprecedented crisis could be a long-term game changer for labour dynamics in South Africa and beyond.

• 00:58: Will business and labour unite against Covid-19?

  AL: I’m Andrew Levy and I’m the senior partner at Andrew Levy Employment and we are a consultancy which specialises in labour relations, labour law and labour market analysis, so we are simple labour people, that’s what we do.

   

  TS: So Andrew, I was looking at all of these questions and there’s some weighty stuff here, but I was also spending a bit of time on social media and on some of the chat threads on news sites last night and wandering, what is the big issue that’s on people’s minds in relation to Covid-19 and the labour market?

   

  And where I got to was something like this: we’ve had an economic history in this country characterised by a lot of tension between business and labour and sometimes it’s exploded into out-and-out conflict and the most horrendous violence.

   

  But we’ve also seen times when in extraordinary circumstances business and labour have come together. Like the CODESA process in the 90’s and in some of the darkest moments in the Zuma years when state corruption was a common enemy.

   

  So, the question is: does this extraordinary crisis become another source of tension and conflict or does it become a common enemy that unites business and labour and compels them to come together in the long term interests of workers and the economy?

   

  AL: I’m afraid I can’t see cooperation as the immediate outcome of this and this takes us to the whole issue of how the economy will restart and, in a manner of speaking, the State President switched off the economy with a flick of a switch. But it can’t start again the same way. It’s going to be a long, slow, staggered process.

   

  We are going to have a situation where labour demand will certainly be down, companies will have failed, they will be laying off workers. They will be restarting on a phased basis according to their demand. They will find that a lot of the jobs that they thought were essential are not essential, so one of the inevitable results of this is going to be a continued and accelerated loss of jobs on top of the decade-long trend of job loss.

   

  Now when it comes to retrenchment or anything of that nature, the unions have not shown any ability to cooperate with management (or capital, as they would call it) at all. Their attitude has always been, we will fight it and we will stop it and there will be blood in the streets, as opposed to perhaps a more measured view which says we don’t like it but we realise that we cannot stop it and therefore let us do the best we can for our members and try this on a collaborative basis.

   

  I don’t see that. And if you add to that the more pressing problems that we will face, which we already know of, such as the public sector wage bill, I see very little chance that the union movement per se will find common ground with management, either at Nedlac level or at bargaining council level for industries or at company level.

   

  So, I think it’s going to be troubled waters ahead, certainly for the balance of the year, which is going to be largely taken up with the start-up process.

• 04:27: The hot button issue of the public sector wage bill

  TS: A lot of the comments around this have been: surely at some point there needs to be a recognition by unions – and you have mentioned that when the economy kind of flicks back on labour demand is going to be down, there may well be some jobs that people realise are no longer required – is the writing not clearly on the wall now for unions to say, look, unless there is an understanding that we need to be open to some kind of reform -- for example, some compromise on the public sector wage bill – that actually when we come out the other end of this they are going to have a whole lot fewer members than they have now.

   

  AL: With regard to the question of unions seeing the writing on the wall, the answer is no, even though their backs are to it. And this is because we are still plagued by this huge ideological divide.

   

  COSATU, NUMSA the break-away, are still firmly embedded in a Marxist-Leninist paradigm. They see capital as the enemy, they are awaiting the arrival of the socialist state and as long as they have that mindset it’s going to be very very difficult to find common ground.

   

  Now, whether or not those views are shared by their members is an open question and certainly government has tried to address this in their code of good practice on collective bargaining and strikes. They appear to be very aware of the fact that frequently the agenda or the strike is set by the union or the shop stewards rather than driven by the desires of the members.

   

  But, having said that, the acid test is going to be the public sector wage bill, and of course the well-known fact that Eskom is severely over-manned. And that very much is going to be the issue on which we stand or fall.

   

  The current debate in and around, will there be an implementation of the existing wage deal in the public sector, is an interesting one and government is remaining kind of equivocal. They are equivocating about this.

   

  I would have thought that from a strategic point of view the best thing they could have done was to announce their intention to retrench under Section 189 and then to say, one of the ways we can avoid this is by reducing and by agreeing to reduce the wage increases scheduled for year three of the deal. And that would have been a very simple way to get around the fact that there is a binding agreement in place.

   

  Now they didn’t do that so it’s hard to see, but we still hear continuous sounds of ‘we are going to tackle it’ and one’s either got to be an optimist or a pessimist in this. Do you think they have what it takes politically? I think, and bear in mind I am certainly not a political analyst, that the State President will emerge out of this strengthened more confident, and I, for one, believe that he will tackle those issues.

   

  So, I think that we are going to see serious levels of retrenchment in the public sector, certainly within Eskom. And one also needs to dispel the myth which is perpetuated by public sector workers that they are the poorest of the poor and they are very badly paid. That is not true at all. In fact they are not only the best paid, but their employment is the most secure. They hardly ever get dismissed and their benefits, by way of leave, additional leave, etc. etc. far outweigh those in the private sector.

   

  So, with this scenario in mind, if it is to take place it again becomes virtually impossible, ideologically, for the unions to say ‘let’s cooperate with this process’, although the logical voice says, if it is inevitable then surely you would do better by sitting down with management and talking about training, retraining, saving jobs and doing the best you can rather than saying ‘over our dead bodies’.

• 08:49: Which sectors will be hardest hit?

  TS: So the public sector wage bill being very top of mind at the moment, but then, obviously, the private sector having to deal with questions about, how do I stay in business? How do I remain viable? How do I keep my workers employed?

   

  And we’ve seen a whole lot of moves to keep businesses that are fundamentally sound from going bust during this lockdown period. But obviously there is only so long that that can continue. What are the sectors that worry you most from a labour perspective? Where are we most likely to see deleterious long-term impact?

   

  AL: I think the immediate and the most likely sector where we will see business failures and job losses is retail. That’s because during lockdown they have no clientele, they have no customers at all. The issue of their overheads remains, but equally when this is over there will be a lot of illiquidity in the economy, demand will be down, workers will not have money to spend on luxury items. And so,  generally the retailers will find themselves in a very difficult situation.

   

  We already know that some of the biggest chains which are household names are on the very edge of survival and it may well be that this will be the last straw for many of them. Of course, what we won’t see as much is the smaller business, the mom and the pop shop, who may well, a) not have the capital, b) not perhaps have the ability to get bank finance or overdraft finance to keep themselves going, and who might finally even say it’s just not worth it. So, I think that’s where we are going to see the initial catastrophe.

   

  The major industry which is probably going to be safest, although there will clearly be a lagged start, is mining. And much will depend on levels of demand throughout the world. But mining will continue although once again it won’t go back to full employment on day 1.

   

  I think the entire food sector, from production to distribution to point of sale, will be reasonably well insulated because people still have to eat. And if you look at some of the other areas of manufacturing, they are also going to find themselves in difficulty.

   

  So, what immediately comes to mind is the auto industry. Buying new cars is certainly luxury expenditure and that’s highly price elastic or wage elastic. There are of course whole industries making componentry for the motor industry from brake pads to trim - they will feel the pinch.

   

  If we look at metal engineering generally which has seen a loss of over 250,000 jobs over the last eight years or so (largely exported to China), once again that will struggle to get going because they are dependent on other industries by and large for the sale of their products.

   

  And equally the chemical industry who supply raw materials for a lot of the production processes are also going to find that demand is down, but that equally – because many of their imports of raw materials, of essentials for other manufacturers, are dollar-based – the instability in our currency which inevitably follows from the downgrade is also going to make life difficult.

   

  So, generally speaking it’s not a happy picture for anyone; although I would say that people have still got to eat, presumably they still need electricity, which they don’t always get so that’s an open question anyway. And we are going to need the transport and distribution network to work, so those are the critical ones in terms of where jobs will probably be the safest.

   

  But one of the things that follows from this is that employers will learn that they can run their businesses on a much leaner labour force; and employers are notoriously loathe to re-hire if they can avoid it. And because they are running in some cases on greatly reduced numbers of people and getting by, it’s going to dampen down demand for labour.

   

  So all in all, given our labour market absorption rate, which is particularly low (we can only place probably about 40% of the people who enter the market looking for jobs) and given that there are going to be a lot more people displaced who will be job seekers means the labour market is going to be a very difficult place.

   

  It also means difficulty for first-time labour market entrants – and we know that their uptake in terms of finding jobs in the labour market is the highest, particularly amongst black males from 18-25. They are going to find that they are competing for jobs against people who have experience, people who were employed, people who have got skills and a track record and that’s going to make it even more difficult for them. So it’s going to be certainly a buyer’s market if you want to hire labour.

• 14:28: Accelerating the trend of remote working

  TS: That’s interesting. Somebody said to me the other day that one of the unintended consequences of us all working from home, particularly as far as knowledge workers are concerned, is that companies are going to realise that they can quite easily outsource some jobs to people across the world where physical presence is no longer a requirement. I suppose that would further play into the dynamics you’ve mentioned?

   

  AL: It certainly will. And Covid, more than anything else, is going to fuel or accelerate the rate of outsourcing of working from home; of getting labour inputs from anywhere around the globe. And the old model of the worker who comes to work from 9-5 and sits at this desk and does whatever he does is also going to disappear because employers are going to realise that they don’t need to see their employees every single day and when they need to meet with them they can do it via electronic media which is usually much quicker and much more effective, and this means that work can be done from almost anywhere for knowledge workers and people like that.

   

  What this of course is going to mean is that we are going to have to find ways to ensure that we can monitor both output and performance in terms of a quality standard and also the numbers, the productivity of workers who are no longer under your immediate supervision.

   

  And I’ve no doubt, in point of fact, that we are going to find electronic means of monitoring which are much more invasive, much more effective than the boss occasionally casting his eyeball over acres of workers. But what is does suggest to me too is that we are going to have to rethink on an evolutionary basis the way in which we not only assess performance but the way in which we reward performance. So, I think we are probably going to become far more output-based in terms of determining wages.

   

  TS: It could be deemed a good thing if you’re an employer; could be quite scary but also quite positive if you’re an effective worker. What it might mean is that the times of unproductive workers demanding higher and higher wages are nearing an end?

   

  AL: Yes, I think the old model of the way in which we pay is going to change. It’s not always very effective particularly when you look at salaried staff and that’s almost a sine qua non in terms of the new patterns of working.

   

  There are going to be obvious issues which will be raised in terms of personal freedoms and privacy and electronic surveillance which is going to be quite oppressive in many respects. But employers will certainly find it easier to get what they pay for, they will also find of course that they don’t need such large premises any longer, they don’t need to pay rent so much. But we are looking a little bit down the track here but nevertheless the worldwide experience of this plague will do is accelerate this trend which was beginning anyway. It’s now going to move at a faster pace.

• 17:39: The impact of mechanisation on South Africa

  TS: And I guess, together with that, greater mechanisation where it’s more efficient for the company, which we are already seeing happening in the mines where geology allows in South Africa to quite a big degree, right?

   

  AL: Inevitably. And if you take platinum as an example and you look at the numbers of jobs lost in platinum as a result of the big platinum strikes in 2012, we’ve lost several hundred thousand jobs simply because of mechanisation.

   

  Now, there are many reasons other than labour unrest and trade union instability as to why the employer who is investing in new plant and equipment or technology or methodology has to choose the most effective and the youngest vintage of capital; because he’s got to compete on a world market and that means he needs the most efficient material, which inevitably demands less labour but more highly skilled labour.

   

  So, the future world of work means fewer people employed but earning higher wages and of course if you put this into the South African context, this is antithetical completely to what we need. We need people with picks and shovels, we need labour-intensive jobs. But no business can afford to make the decision that that’s the route we are going to go and remain competitive, particularly in a world market.

• 19:10: Are the fiscal and monetary stimulus policies enough?

  TS: So as you say a lot of these issues are looking forward and to even a near-term future. But right now a lot of employers are more urgently wondering about how they are going to pay their workers this month and about how they are going to pay their suppliers, and obviously that’s been the immediate challenge for both government and the finance sector.

   

  And in South Africa we’ve seen some fairly bold moves by government, the mobilisation of the UIF, and by the South African Reserve Bank engaging in buying up of bonds to introduce liquidity into the market, and then even a loosening of lending restrictions on private banks. These are interventions that would have been seen as quite radical just a couple of months ago. Are they having the desired impact in terms of allowing people to keep their workers employed? Are they in fact radical enough?

   

  AL: It’s a little bit too soon to say whether they are working or not, simply because almost all of them involve quite a lot of administrative form filling and applications and so forth. And if we take perhaps the most important one, which is the use of UIF funds to give temporary relief to employers and employees, it’s an excellent idea. It makes total sense. I know of numerous employers who are in the process, or have already lodged their applications. But whether in fact the monies are being paid and the admin machine is able to cope with it I don’t yet know.

   

  In so far as the private banks are concerned: again, I think there will be a quicker uptake on that simply because private sector does move faster and there will unquestionably be use made of that and equally it will give some relief. No doubt about that.

   

  Are they radical enough? Well certainly as you say, Tim, looking back a week ago, 10 days ago, one would have thought that these are absolutely out of the question. But at the end of the day could we be more radical? Probably not, for the simple reason that we are not a wealthy country. We have a horrendous debt-to-GDP ratio. Obviously, one of the first things that is going to suffer because of the downturn is revenue collections and so that is going to increase. Government will not have easy access to funding, because of the downgrade, in order to try and stimulate economic growth to create jobs.

   

  And equally I’m not sure how long the UIF fund can meet these sorts of obligations. And of course it raises the question: if the funds are exhausted now, what about the person who has contributed to the UIF fund for 20 years of his working life who is retrenched in 6 months’ time as an indirect result or a direct result of this but now finds that there is nothing in the fund for him because it’s been used?

   

  But given that it is an emergency situation I think they are good moves. They are sensible moves and I can’t easily think of additional things that we could do in the immediate short term which could give relief.

• 22:29: Would extending unemployed benefits to the informal sector work?

  TS: There was an open letter – I think it was a week or so ago – by a consortium of academics and economists writing to the President and suggesting, among other things, that unemployment benefits should be extended to casual and informal economy workers. Are these feasible proposals or pie in the sky?

   

  AL: I think it’s pie in the sky, frankly. The first thing is, by definition, the informal sector are people who are engaged in activities which are not in any way regulated or registered, so there is no basis to say, yes, you are a genuine participant in the informal sector or not. So how do you sift out the genuine claimants from the non-genuine?

   

  The second thing is that if you look at the various subsidies that government pays to citizens, whether it’s by way of state grants or whatever, we do in fact have almost a wage subsidy in place anyway. And I don’t think that given the numbers of potential applicants and the funding available in the UIF fund that it would make any difference at all, even if it could be administered properly to begin with. And I can see huge, huge difficulties in so far as that is concerned.

   

  If they want to put money in the hands of the people who may or may not be involved in the informal sector then they probably would find a more direct and better way to do it via the social grants because people are registered and there is some degree of control and auditing.

• 24:20: Companies will have to rethink their business models

  TS: So the picture you are painting is a fairly bleak one and that’s not surprising given the situation that we are in. And looking to the longer term we haven’t even begun to feel a lot of the pain that we are going to feel.

   

  But at the same time, we have seen a lot of activities internationally and some locally which have maybe do give one cause for hope. For example, we’ve seen companies in the hospitality industry or even in fact in Investec’s case something that we’re looking at is repurposing commercial building space as quarantine facilities or testing facilities. We’ve seen a lot of factories retooling to produce masks and hand sanitisers.

   

  Is this something that you’ve come across and a second part to the question would be, with necessity being the mother of invention, do you kind of see these dire circumstances perhaps leading companies to rethink their long term working models to be more responsive to the times that we live in?

   

  AL: I think the first thing that I would say is to echo Lord Keynes: don’t worry about the long term because in the long term we are all dead. But that of course doesn’t resolve the problem for those to whom my long term may be their extreme short term.

   

  One thing is clear to me and that is that the world will not be the same after this. It will be much more inward looking; it will be much more introspective. The whole area of international trade will suffer, and one of the things that will emerge is that they will be looking more and more to their own manufacturing capabilities in order to be less dependent on importing supplies.

   

  Now, what that does mean is, certainly, in line with the point you make, companies looking at their business model will try and build in maximum flexibility, not only of labour, which is the major area of flexibility we have seen when it comes to factors of production, but in terms of their capital, so they can switch more quickly from one line to another.

   

  Now, I myself have not yet come across any factories which have stopped producing shock absorbers for motor cars and are now making surgical masks, but I am sure they are there.

   

  Equally there will be a major rethink it terms of some of the larger spaces which may well become redundant, and one can simply think of the impact of online shopping for example on retail and retail malls. Well, this will simply speed all those things up.

   

  To get back to the question of ‘will there be headwinds?’ Yes, there will. This already comes on top of a situation where the world has not yet totally recovered from the banking meltdown. But in the longer term I have very little doubt that the economy will prevail, that the inventive spirit of the entrepreneur will prevail, and that we will go on albeit in a world which is slightly different to this one and one which is not completely easy to envisage at this stage. But in point of fact something will emerge.

• 27:46: How can South Africa avoid an economic catastrophe?

  TS: And that thing that emerges, and this is a tough one: you’ve described a world where the dynamics of the economy are less able then they are even today to absorb large numbers of workers. How do we change that? What can we be doing now to ensure that we are not destined for a future where formal unemployment, instead of sitting at 20 or 30%, is sitting at 40 or 50%?

   

  AL: In terms of South Africa the answer is absolutely simple; it’s the achievement which is the difficult part. The thing which will resolve all our problems is economic growth between 5 and 8% for a decade or a decade and a half. That will do it. We are looking at a simple old-fashioned Keynesian demand deficiency unemployment: there are far more labour jobs supplied than there is demand for.

   

  How do we rectify that? Well, we do it by economic growth. So that’s the answer in theory. But in point of fact delivering that growth is going to be the political challenge as well as the economic challenge. And there we are sadly starting from a long way behind.

   

  We’ve got to overcome the negative ratings and that could take a long time. We’ve got to get to a situation where we are increasing domestic and international demand for our products; that will equally take time. And so there is no quick fix whatsoever.

   

  The positive thing at this stage is that if you look at our economic infrastructure in its broader sense, it is still a good one. We have a banking and financial capital markets sector which is amongst the finest in the world. Whilst our justice system is certainly creaking badly, our legal system when it comes to commercial law does operate. It’s a reasonably predictable environment in which to do business from a legal point of view.

   

  We have a lot of talented people. South African managers and entrepreneurs do well overseas because they are so competent, and they are used to dealing with difficult situations under pressure. Our transport infrastructure may well be creaking a bit and there may be the odd pothole, but by and large we still have road and rail links which are probably the finest in Africa.

   

  So, everything is there which will enable us to begin a growth path. What we need is the political will and the political and national unity in order to do that. It has been done before if one looks at the way certain countries recovered after World War II. Interesting examples obviously are Germany, Japan. Holland had some very interesting collective activities to rebuild the economy. These things can happen. But at the moment we just appear to be just a little bit too fragmented politically for this to be an immediate solution.

• 31:05: Will Covid-19 give President Ramaphosa the space to drive structural reform?

  TS: I guess it comes back full circle to where we started; whether this crisis could potentially provide that political space – because it’s so dire and because the ramifications are so great and so urgent – that it perhaps provides the political space to find a way forward.

   

  We saw Tito Mboweni saying the other day that President Ramaphosa had told him that the Moody’s downgrade was the signal we needed to embark on a process of structural reform, and one could argue that Covid-19 is all the more so.

   

  AL: Well what I would say is (and I’m not a political analyst, so whatever I might say here is nothing more than a personal opinion) in my own estimation, the State President has shown himself to be worthy and competent of our national trust. I think he’s shown strength which we haven’t seen before and if he can carry those through and deal with the dissenters within his own party and perhaps to some extent marginalise, or allow their own rhetoric and policies to marginalise the extreme left wing, like the EFF, then yes this is certainly not an impossibility.

   

  I think the moment of confrontation has not yet come, but it is not far away. And I think that the ANC and certainly the cadres who are not in support of Ramaphosa are able to rely on the unions generally speaking to support their positions. But as this thing plays out, both theirs and the unions’ positions will weaken.

   

  And the unions’ positions have continually weakened over the last 24 months or so and one mustn’t be taken in by their rhetoric. They always talk up their game and the press and public tend to believe them. But they’re not that strong, and until such time as we have our “Thatcher moment” where there is a showdown with the unions, we won’t get on. And I can see that coming quite soon. But I don’t know the inner workings of the ANC and what goes on behind closed doors.

• 33:27: Conclusion

  TS: Thanks Andrew, it’s been a fascinating discussion. I really, really appreciate your time. Before we leave it, is there anything on this topic that you’d like to get off your chest?

   

  AL: I’d just like to, while I’m here, say hello to my mother who’s 101 and been through world wars and things like that, and she’s still going strong like Johnny Walker, so no, there’s nothing else I really have to say, other than that human spirit is a strange thing.

   

  TS: Well, I guess one of the positives to come out of this very tough situation is that many of us are taking more time out to call our mums and others that matter most to us, keeping those human bonds strong, even if at a distance.

   

  Thanks for listening to this Investec Focus Radio podcast. If you enjoyed it, please take a moment to rate us. I’m Tim Spira, head of digital content at Investec and I want to tell you about our next Focus Radio podcast with Kevin Hogan, head of fraud risk at Investec’s Private Bank.

   

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