Warning over South Africa's new national minimum wage

While a rise in the National Minimum Wage (NMW) in South Africa was necessary, the 9.6% increase that was eventually enacted puts small and medium-sized businesses in jeopardy and may spell the end for many.

According to Daniel van der Merwe, attorney and National Collective Bargaining Co-ordinator for the Consolidated Employers’ Organisation (CEO).

Van der Merwe stated that the NMW pay hike announced on 21 February 2023 has raised concerns about the viability and survival of South African Small to Medium Companies (SMEs).

“In September 2022, the National Minimum Wage Commission published a report on the possible adjustment of the NMW and called for public comment.

“The Consolidated Employers’ Organisation (CEO), being one of few employer organisations that protect the interests of small and medium-sized businesses, responded to the call for commentary and expressed great concern regarding the sustainability of SMEs given the current economic climate and prevailing economic conditions were the NMW to be raised significantly,” he said.

After the original consultation process, the Commission issued a follow-up report in December 2022, recommending a 9% increase in the NMW despite all of the hazards raised by CEOs and other organisations.

Despite efforts to encourage the Commission to adopt a sustainable rise for all parties, the NMW has been raised by a “dramatic amount” of 9.6%.

Some employers, such as Global Business Solutions, raised concern about the rise, claiming that the boost – apparently based on late 2022 headline inflation statistics plus 2% – was out of touch with the country’s present economic circumstances.

“Inflation is falling, both in South Africa and around the world, and economists predict it to be within a range, on average, of between 5% and 5.5% for this year. This increase of 9.6% is a whopping 4.1 percentage points above the most conservative prediction that the range of inflation would be,” it said.

“In these tough economic times, this is inexplicable. With our ongoing electricity crisis and other problems besetting the operating environment, a lot of businesses, especially small and medium-sized firms, are not likely to absorb the shock of such a high increase. Unfortunately, jobs and employment opportunities will be lost.”

Van der Merwe stated that the hardships endured by many South African minimum wage labourers, as well as the catastrophic economic situations in which they find themselves, could not be disregarded, and that the goal of the NMW is to secure a livable income.

Unfortunately, the difficult climate in South Africa has produced difficulties for both wage earners and Small businesses.

“SMEs are held hostage by ever worsening load shedding and lower labour productivity levels, which have given rise to increasing unemployment levels. The plight of SMEs seems to be totally ignored in the interests of short-term political gains,” he said.

“It is illogical to place already-overburdened employers in a more perilous position rather than looking for ways means to stimulate the economy and create more jobs.”

Van van Merwe cautioned that raising the NMW would almost surely kill off many Companies that were already on the verge of bankruptcy.

“It is hoped that the realisation that these organisations are highly susceptible to factors such as rising costs and load shedding will dissuade the NMW Commission in future from imposing such punitive measures on an already-struggling sector of the economy.

“Focus should be directed at rectifying the issues within economy, stimulating growth and looking for ways to weed out corruption and create employment,” he said.