Higher wages hamper growth

By | 2021-06-08T10:35:27+00:00 June 8th, 2021|

The National Minimum Wage for farm workers (including forestry workers) that took effect on 01 March 2021, will reverberate throughout the timber sector, including the entire supply chain and the construction industry. The new minimum wage has been set at R21.69 per hour, an increase of 16.1% over the 2020 minimum wage of R18.69 per hour.

There are concerns that the wage increase will have an adverse effect on small to medium sized enterprises in the supply chain and especially on the upstream small scale forestry companies and community growers. The announcement could not have come at a worse time as companies in the industry attempt to contain costs and their wage bills in the wake of the devastating Covid-19 pandemic.

Hopes that true transformation, growth, and job creation in the sector will take place organically once small-scale foresters and growers start upscaling were dashed with the announcement of higher minimum wages. With spiralling costs already hampering growth, most small enterprises will not be able to afford a bigger workforce, which negatively affects the job creation goals of national government.

According to Francois Oberholzer, operations manager for Forestry South Africa (FSA), the small and medium growers will undoubtedly be most severely affected. “We do hope that all growers that will not be able to implement the new minimum wage apply for the exemption offered by the state,” says Oberholzer. Not being able to comply with the new government regulations has additional consequences for small scale and community run operations. For example, they will not be able to get certified if they do not comply with the minimum wage.

Therefore, it is imperative that these operations apply for the exemption. According to Employment and Labour Minister Thulas Nxesi, the National Minimum Wage Act makes provision for employers that are genuinely unable to pay the National Minimum Wage to apply for official exemption. Unfortunately, the exemption is only a one-year deferment and most small-scale growers will find it difficult to comply to the new minimum wage the following year.

In the past, the minimum wage for farm workers was set slightly below the National Minimum Wage, taking into consideration factors impacting on the rural economy in South Africa. However, this special dispensation for farm workers no longer applies, with the farm worker minimum wage reaching parity with the National Minimum Wage from 1st March 2021. Hence the big jump of 16.1%, which is way ahead of inflation, currently around 3%. A wage of R21.69 per hour translates into R173.52 per 8-hour day, or R 3 470.40 for a 20-day working month – before deductions.

Oberholzer says that the timing of this wage increase is particularly unfortunate. “The State has a history of poor timing and implementing major changes when conditions could not be worse,” commented Oberholzer. “The implementation of the minimum wage should have been timed during periods of high growth and low unemployment. This increase comes when the country is experiencing record high unemployment and when businesses are the least profitable they have ever been,” he says.