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Weekly Shots: Minimum Wage Debate, Global Recovery, Inflation & Energy Crisis

The National Minimum Wage debate in SA

Image by Cytonn Photography on Unsplash

This week, the National Employees Association of South Africa (NAESA) submitted a response to the National Minimum Wage Commission’s recommendations to increase the hourly minimum wage. The recommendation was submitted on September 10, 2021, as part of the commission’s annual review as provided by the National Minimum Wage Act.


According to the government, a national minimum wage is a critical tool for poverty alleviation, as it protects workers from earning below the poverty line. Other important factors that are taken into consideration for the minimum wage include inflation; the cost of living; GDP; wage levels; productivity; the ability of employers to carry on their businesses successfully; the operation of the small, medium, or micro-enterprises and new enterprises; and the likely impact of the recommended adjustment on employment or the creation of employment.


NAESA argues that “if the Commission considers the above factors to make appropriate, rational recommendations regarding the NMW, no increases will be recommended, as there will be no financially justifiable grounds, therefore.” The employee organization submits that given the impact of Covid-19 and the July insurrection on the economy increasing the minimum wage would have dire consequences on businesses and would result in more job losses. This would ultimately increase poverty, achieving the direct opposite of the government’s initial intention.


Global recovery, as it stands… and falls.

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This week, the International Monetary Fund (IMF) released its World Economic Outlook. The report details how the world’s economies have performed, along with short-medium term performance expectations.


The IMF has marginally reduced the rate at which it expects the global economy to grow in 2021 from 6% to 5.9%. This reduction was largely driven by the emergence of the delta variant, which led many countries to re-implement lockdown regulations, and this slowed down economic activity. However, the IMF expects most advanced economies to return their pre-pandemic growth trends in 2022 as supply chain issues ease, and to exceed the current projections by approximately 1% in 2024. On the other hand, emerging and developing economies, except China, could decline further and remain 5.5% below their pre-pandemic growth forecast by 2024.


According to the fund’s chief economist Gita Gopinath "These divergences are a consequence of the 'great vaccine divide' and large disparities in policy support. While over 60% of the population in advanced economies are fully vaccinated and some are now receiving booster shots, about 96% of the population in low-income countries remain unvaccinated." If unattended, this could further exacerbate the differences in the living standards between the advanced and developing worlds.


Global Power Crisis and Worldwide Inflation

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In the past week we have seen the increased reports of power crises across the world. Locally in South Africa, the nation has been going through a series of phased loadshedding. Reports say recent loadshedding will be suspended on the 14th of October with the “significant risk” of further rolling blackouts. In the UK, the fuel crisis that started just over 2 weeks ago is still ongoing. China is facing their own power crisis as its over reliance on coal has hampered them. This has been caused by the significant increase of coal prices and government closing a number of coal mines for safety and environmental reasons. These are just some of the examples of the different power crises hitting multiple countries globally. The result of all this especially China has been the increase in the price of general goods, fuel and energy. The UN reports that food prices are at an all-time high for this decade. The trend is expected to continue meaning that this is not just transitory inflation. It is real inflation!


The Long Uncertain Road To Achieving SDG 13

Image by Michael Matlon on Unsplash

Achieving SDG 13; ‘take urgent action to combat climate change and its impacts’ is proving largely difficult as fuel shortages and blackouts have become the order of the day in some countries. In China where coal production had been curtailed to meet climate goals, officials have ordered a 10% increase in production and plans are in place to build more advanced coal-fired power plants and increase oil and gas exploration in line with the country’s developmental goals. There is a negative outlook on China’s third quarter economic growth which will be released on Monday due to the impact of the energy crunch and the real estate debt crisis in the wake of Evergrande’s missed payment.


Data from the federal grid operator in India shows that over half of its coal-fired power plants have less than 3 days’ worth of fuel stocks which has led to the government increasing coal imports and ordering increased production in mines. The energy crisis in some countries can in part be explained by the energy demand rebound from lows hit in 2020 which has raised prices for oil, gas and coal as well as ongoing supply restrictions by oil cartel OPEC and global transport regulations complicating fuel distribution. This week, due to the energy crisis, China’s coal futures closed every trading day at a record; the biggest weekly gain since they began trading in Zhengzhou in 2013.


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