Johannesburg (By: Mzwandile Jacks – Fin24) – South Africa’s resource sector continued to de-rate because of the risk associated with the mining sector, according to a Cape Town-based fund manager.
Johnny Lambridis, a fund manager at Element Asset Management, said this had been driven by the miners’ strikes that have engulfed the sector in recent months.
“It is inconceivable for us that other South African-centric sectors, many of whom have unionised workforces, will not also suffer either direct labour unrest or de-rate on increasing political risk,” Lambridis said in a note released recently.
Meanwhile, Lambridis said while there was pressure from unions and persuasion by government and other social organisations for mining companies to re-open existing wage agreements (i.e. increase wages) in order to restore stability, a number of the mining companies could not simply afford salary increases.
“Continual increases to the cost base of these companies will result in losses (costs exceeding revenue) and ultimately insolvency (liabilities exceeding assets),” Lambridis said.
“As the Companies Act in South Africa rightly prohibits a company from operating when it is insolvent, companies will reach a point where they are forced to shut down and jobs will be permanently lost.”
He said while Lonmin workers appeared to have “won” a 22% wage increase in truth continual above-inflation wage increases that are not matched with productivity increases would simply accelerate the substitution of labour by capital in the private sector.