South Africa: Fix The Labour Laws Or Face A Revolution

The Labour Relations Act significantly deters job creation in giving unions powers to demand close shop agreements. Unions matter, but they should not strangle the economy.

Source: OpenAI (Provided by the Author)

Some countries have run out of road and cannot keep growing economically without more immigration or oil.

South Africa is at the other end of the spectrum. It has a very easy route to very fast progress – burn the edifice of labour laws keeping people out of work.

This will not solve all SA’s crises. But it could create upliftment unparalleled in emerging market history.

Some of these laws will need an alternative, others will need dilution. Some will need to be burned altogether.

They are many and extreme.

What are they?

Through the National Minimum Wage Act of 2018, SA has set this rate at the national average.

Countries with successful experiments in the minimum wage such as the UK have set it at half the national average.

The Labour Relations Act significantly deters job creation in giving unions powers to demand close shop agreements. Unions matter, but they should not strangle the economy.

A hotly contested area is Broad Based Black Economic Empowerment (BBBEEE). This requires companies to comply with everything from black equity allocations to black employee quotas.

In July 2024, the ANC enacted the ‘Public Procurement Act’, meaning that,

“… all government bodies will have to follow the same rules on setting aside contracts for black empowerment”.

That is according to writer Jonathan Katzenellenbogen. In cases like these, a factory needs to buy equipment from the Original Equipment Manufacturer (OEM) and not a handpicked ‘Empowered’ Black business.

There are other laws and their scope and requirements are being ramped up.

As a result of all of this, there are more race-based laws now than under Apartheid.

Some say big business is complicit, enjoying the regulatory moat that locks out new entrants.

According to research by the IMF, mark-ups by publicly listed firms in SA increased by 25% from 2000 to 2016. The average rise globally was 6%.

And so big business, just as much as failed policy ideologues, may be to blame for the world’s highest unemployment rate.

BEE alternative?

Given SA’s brutal, recent history, there is a strong argument that there should be something built into the system that favours the black population.

Yet the scale of BEE strangles and distorts business. No new large-scale mining projects have entered SA in years partly due to having to hand over large equity stakes. BEE can cost companies up to 5% of their profits.

Scrapping BEE in the private sector and keeping a modest version of it for the lower tiers of the public sector, would be acceptable to most.

And an alternative would allow SA to avoid the extremes of policy that have plagued other countries.

To provide genuine social impact, equity equivalents should be introduced.

This is the essence of the Economic Empowerment for the Disadvantaged (EDD), proposed by SA’s institute of Race Relations (IRR).

Recipients of the EED would be means tested on a poverty basis.

An IT firm could fund a year-long apprenticeship scheme in software or data engineering to EED recipients, for example.

Recipients could also apply for small business funding. A national start up incubator in a country like SA could be among the world’s most exciting.

Allegedly, fewer than 100 people have received USD 56bn (ZAR 1trn) through BEE. That could have provided USD 10,000 (ZAR 180,000) in seed capital to over 5m businesses.

SA communities and minorities have thrived when given the right to build their own businesses at scale. Nothing would be more empowering than assistance, financial and logistical, for poorer communities to create their own pathways.

Forward

Longtime author RW Johnson draws a parallel between the current period and late 1980s South Africa, when the Apartheid government had implemented a vast array of race-based legislation accumulated over half a century.

“… it appeared likely … that it would take just as long to dismantle it. But in practice, that didn’t happen … it was … when De Klerk made his big turn in February 1990 … And very quickly, it was all gone. Now, … that the same situation is building up with the ANC…”

One wonders if Mr Ramaphosa may burn the labour laws one year before the next election in 2029. That would be harder this time around as the political system is no longer a parliamentary democracy.

But it should not be seen as a callous Thatcherite move. It would merely bring SA in line with the rest of Africa, erasing barriers seen nowhere else in the world.

The Free Market Foundation (FMF) has suggested an ‘exemption card’ for young people to get on the job ladder by swerving such laws.

An exemption card from the minimum wage was in the DA’s election manifesto. Making its support for the 2026 budget conditional upon this would win enormous support.

RW Johnson also talked of ‘flare ups’ in violence during the Apartheid era as frustration boils over. There have been flashes of this in SA’s modern era, too, with widespread riots in 2021.

Consistent polling has put South Africans not as a revolutionary bunch. Ordinary people already experience violence and therefore do not vote for parties that espouse it.

Yet that may change on a sixpence. People can seem tolerant until they are not. If, after so long, a coalition government does not deliver change, it may come to be seen as an elite project, which may breed deep resentment and protest.

Ordinary people may then vote for the extremes. They would be forgiven for doing so after many false dawns.

But an easy way to move forward is to normalise the economy and give everyone a fair chance.

Seán McLaughlin is an independent Political and Data Analyst and an Associate at the Free Market Foundation. He can be reached on X and LinkedIn and Substack.