Business Day
*Patel wages cap will put off investors — business**Alistair Anderson and Sam Mkokeli, Business Day, Johannesburg, 25 November 2010*
BUSINESS has given Economic Development Minister Ebrahim Patel’s plan to force companies to cap wages and bonuses a thumbs down, warning it would deter foreign investment and discourage productivity improvements.
The proposed mandatory caps on wages and executive bonuses, which is among a raft of initiatives designed to stimulate growth and combat inequality, is a standout feature of the minister’s New Growth Path document, released in Parliament on Tuesday.
Mr Patel’s plan moots "moderate wage settlements" for those earning R3000-R20000 a month, "possibly to inflation plus a modest real increase", with "inflation-level increases for those earning over R20000 a month", and a cap on pay and bonuses for senior managers and executives earning above R550000 a year.
South African Chamber of Commerce and Industry president Chose Choeu said yesterday the chamber "would only support voluntary implementation of such restraints".
The plan also envisages creating 5-million new jobs between now and 2020, which the chamber welcomed, even as it warned that the goal would be "difficult to achieve".
Mr Choeu said the government would have to implement policies and incentives to grow the small, medium and micro-enterprise sector, and cut the red tape hindering small business development.
He said the chamber supported the focus on boosting engineering and artisan skills, and the focus on the green economy.
Organised labour has yet to give its verdict on Mr Patel’s plan, but the Congress of South African Trade Unions is due to do so at a briefing today, and it is unlikely to endorse the wage caps.
Meanwhile, the Solidarity trade union stressed the need for adequate implementation. "In the first place, it is just another growth path. Our problem is we need action. We are positive about certain elements. We are positive about the local economy, skills training and skills development," said Solidarity deputy general secretary Dirk Hermann.
"However, we are not positive about any more regulation efforts. We don’t have, at this stage, a strong government with strong capacity. If you want to regulate with a weak government with a weak capacity, it will be detrimental to the economy," he said.
In other reaction, Investec economist Annabel Bishop cautioned that the plan advocated "significantly increased state control to the point of socialism".
"The wage-price pact between government, labour and business is aimed at enhancing social equity or fair access to earning a living, education and resources — all of them laudable goals.
"Essentially, consumption is to be constrained and production ramped up, but increasing VAT and cutting corporate taxes would achieve the same," she said.
And top developmental economist Moeletsi Mbeki said the document "reads like an election manifesto".
It offered no new solutions to SA’s economic problems, and showed the government was not in touch with what was happening in SA, as its plans to turn smallholdings into a hive of agricultural activity were a "total nonstarter".
Labour analyst Tony Healy said even if wage caps were instituted, they would be a "two- edged sword for business".
"On the one hand, business would be attracted to any savings related to the capping of pay for employees, but they run the risk of not being able to attract skills."
He said companies were importing skilled workers for projects such as a major network upgrade at Cell C, for example, but pay caps may cause the imported workers to go to Dubai instead.
However, the African National Congress applauded the document, with spokesman Jackson Mthembu calling it "the basis for a common vision that can unite society". With I-Net Bridge, Sapa
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