Cheap Labour A Thing Of The Past?

Cheap Labour A Thing Of The Past?

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PwC’s ‘Global wage projections to 2030’ on the future outlook of global wages indicates that South Africa and other emerging economies are set to become less important as low cost production locations and more attractive as consumer markets as the wage gap narrows.

Gerald Seegers, PwC head of HR, southern Africa, says: “The direction of change is clear. The large wage advantages enjoyed today by many emerging economies will shrink as their productivity levels catch up with those in advanced economies and their real exchange rates rise as a consequence.

Manufacturing focus could shift

By 2030, PwC’s projections in the report suggest that wage levels in the emerging economies will show a significant degree of catch up with those in the developed economies. This reflects both higher labour productivity growth in emerging economies and expected long-term appreciation of their currencies over the period to 2030.

It also reflects the marked tendency since the late 1990s for real wages in advanced economies to rise more slowly than productivity growth, which is expected to continue at least in the short term, although it may fade in the longer run.

The analysis also suggests that, by 2030, countries such as India and the Philippines could become more attractive manufacturing locations due to their continued relatively low wage levels, on condition that their institutional environments are efficient and improvements occur in their transport and energy infrastructure.

SA’s labour uncompetitive

Supplementary research by PwC in South Africa suggests that South Africa may already be paying a price for its uncompetitive labour market environment. In 2011, South Africa’s average wage was the second highest of all the emerging markets analysed by the wage projection report.

 

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Combined with South Africa’s low global competitiveness scores for the World Economic Forum’s indicator titled ‘Pay & Productivity’, this has resulted in declining levels of foreign direct investments inflows since the global financial recession of 2008-2009.

“South Africa may therefore buck the general trend of strengthening emerging market currencies forecast in the PwC report, due to the combined pressure on the current account of rising imports of machinery and equipment (due to infrastructure expansion) and the gradual switch from domestic manufacturing to  fully imported consumer products, says Botha.

“A particular point of concern for South Africa is the fact that its four partners in the BRICS (Brazil, Russia, India and China) grouping all have considerably more competitive wages, which underscores the country’s inability since especially 2009 to attract meaningful levels of foreign direct investment,” he adds.

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