Portfolio Committee on Labour on the National Minimum Wage Bill Presentation to the Portfolio Committee on Labour on the National Minimum Wage Bill Roger Godsmark, Chairperson Forestry South Africa HR Committee 22 March 2018

Presentation Outline Introduction to Forestry South Africa Characteristics of the South African Forestry Sector Sectoral Determination 12 for the Forestry Sector General Comments on the NMW Bill Specific Comments on the NMW Bill Conclusion

Introduction to Forestry South Africa Forestry South Africa (FSA) is an Association which represents the interests of its members in particular and the promotion and wellbeing of the South African Commercial Forestry Industry in general. Although membership is voluntary, members include: All 11 corporate timber growing companies is SA 1 100 commercial timber farmers 20 000 small-scale timber growers FSA represents over 90% of the Forestry Industry

Characteristics of Forestry Sector 1 Unlike many other Sectors, the Forestry (and Agricultural) Sectors exhibit specific characteristics which will make the implementation of the NMW, as currently proposed, particularly challenging Structure of Ownership Forestry: Will have an impact on different sub-sectors’ ability to pay NMW 11 corporate timber growing companies is SA 1 300 commercial timber farmers 25 000 small-scale timber growers Employment Structure: 60 000 direct jobs +28 000 indirect jobs in forestry 70 000 indirect jobs in down-stream primary processing 25 000 small-scale timber growers (own livelihoods) Industry Highly Intensive: Labour costs can contribute up to 40% of operational costs. NMW will have a major impact on these costs.

Characteristics of Forestry Sector 2 Employment Characteristics: Provides entry level jobs in rural areas where very few jobs 70% workforce unskilled High labour turnover rates Task based work system in place Operations partly outsourced to 300+ forestry contractors who employ 30 000 people – increasingly black owned contractors 25 000 small-scale timber growers Difference Between Wages vs Remuneration: Given rural location, accommodation, food and transport often provided. Suited to mechanisation: Harvesting & silviculture Highly Volatile Net Farm Income: Impacts on affordability of NmW Drought, pests & diseases and above all, fire

Characteristics of Forestry Sector 3 Forest Certification – SA world leader Over 80% of Industry certified by FSC Result – compliance with all SA laws 100% Major Catalyst for Rural Development: Provision of: Infrastructure development & maintenance, incl. housing Educational & health facilities and provision Safety: fire-fighting and security services Integrated Nature of Operations: Forestry & “on-site” primary timber processing activities – sawmilling, pole treating, charcoal Timber Growers are Price Takers: No control of prices received for products so have to control costs to maintain productivity No Government Support: Unlike given to competitors No planting grants, production subsidies, tariff protection etc.

Sectoral Determination 12 for Forestry Sector Debate on NMW needs to be seen in context SD wage increases Between 2006 & 2012, increases in wages reasonable In 2013 minimum wage increased by 56% This caused a huge increase in operating costs (by as much as 22%) Consequences Hours of work cut (to save jobs) Increased mechanisation (to improve productivity) Business failures (those who could not do the above) Result…. Job Losses

General Comments on NMW 1 The objectives of the NMW are laudable & are supported BUT…. We believe that under the current socio-economic climate, they will not be achieved. Some points to note are the following: Current Unemployment Level: Current unemployment rate 26.7% (narrow definition) Youth unemployment even higher Equates to 5 880 000 people unemployed Impact of NMW on Employment Levels: According to Govt’s own impact assessments: between 205 000 and 897 000 jobs could be lost This would raise no. unemployed by between 3.5% and 15.3% If dependents added, highly alarming & cause for concern. Recommendation: Postpone implementation of NMW until the economic environment improves to an extent whereby job losses will be minimised.

General Comments on NMW 2 Other issues that need to be noted include the following: Impact of NMW of Employment Levels in the Agriculture and Forestry Sectors: Impact Assessment conducted on behalf of Govt. stated that SD minimum wage increases: “Research on the impact of minimum wages in sectoral determinations in South Africa has found that adjustments have not had significantly negative dis-employment effects, with the exception of agriculture”.  This includes forestry as part of agriculture.

General Comments on NMW 3 Minimum wage increases, past (i.t.o. SD) & proposed (i.to. NMW) need considering as they have & will have an impact on affordability Wage increases between March 2012 & March 2018 (6 yrs) Nominal increase - 122.0% Real increase - 77.7% In terms of the impact of the NMW, the following should be noted. In nominal terms, the wage will increase from Feb 2018 to may 2019 by 30% (16 months) In real terms, this represents an estimated increase of 17.9% These are successive and large wage increases which are difficult to manage in order to save jobs. They also bear not relation to productivity increases thus putting business survival under pressure.

Minimum Hourly Forestry Wages March 2012 – May 2019 Up 56% Up 30% Up 35% R20.00 R7.32 R13.76 Increase over period R12.68 p/h – nominal - 173%, real - 88%

General Comments on NMW 4 The phasing in of the NMW for farm workers is to be welcomed. However, the ability of the Forestry & Agricultural Sectors to absorb higher wage increases has & will be extremely challenging Operational Costs – The Bigger Picture: Non-wage increases: Eskom and water charges Municipal property rates Transport cost increases (road, rail & tolls) Other administered tariff increases Industry’s Ability to Afford Higher Wages Industry under severe “Cost-Price Squeeze” Recommendation: When the NMW is implemented, the NMW for farm workers be phased in over a minimum period of 3 years (currently 1 year)

Chapter 2: Calculation of Wage: Clause 5 (1) (b) This clause states that: “Despite any contract or law to the contrary, the calculation of a wage for the purpose of this Act is the amount payable in money for ordinary hours of work excluding - ” “any payment in kind including board and accommodation”. Comments: The SD for Forestry (and Agric) allows deductions for food, accommodation, food, repayment of loans, credit and Court awards. In deep rural areas workers receive accommodation and food as the norm and as generally not able to get credit from banks, obtain loans from their employers. They would suffer if these were withdrawn. Recommendation: This clause to be amended to allow for the current allowable deductions as per the current Forestry (and Agriculture) SDs

Chapter 2: Conduct of Annual Review: Clause 7 (a) This clause states that the NMW Commission should promote: the medium-term targets referred to in sections 11 (d); the alleviation of poverty; and the reduction of wage differentials and inequalities. Comments: The single biggest priority of Government should be to reduce unemployment. The goals to be promoted listed make no reference to one crucial factor - job creation / preservation. Why is this so? Recommendation: Clause 7 (a) needs to be amended to include job creation

Chapter 3: Composition of Commission: Clause 9 (1) This clause defines the membership of the NMW Commission and includes organised business, labour, community plus an independent Chairperson appointed by the Minister. Comments: A crucial stakeholder on such a Commission needs to be those representing the unemployed who have been and continue to be marginalised and excluded from the debate on labour issues.   It is not clear from the above who on the Commission will represent the unemployed.   Recommendation: It is crucial that the voice of the unemployed be heard through their participation in the Commission. Clause 9 (1) thus needs amending.

Chapter 3: Functions of the Commission: Clause 11 (b) This clause defines the functions of the Commission as being to: “investigate and report annually to the Minister on the impact of the NMW on the economy, collective bargaining and the reduction in income differentials.” Comment: Although the Commission has to report on the “economy”, this is vague. Focus needs to be placed specifically on the NMW’s impact on employment levels within the economy. Recommendation: Clause 11 (b) be reworded to include “levels of employment”.

Chapter 3: Secretariat of the Commission: Clause 13 (c) This clause defines the functions of the Secretariat, including: “the monitoring and evaluation of the impact of the NMW on the economy and the reduction in income differentials.” Comment: The Secretariat has to monitor and evaluate the impact of the NWM on, amongst others, the “economy”. This, again, is vague. Focus needs to be placed specifically on the NMW’s impact on employment levels within the economy. Recommendation: Clause 13 (c) be reworded to include “levels of employment”.

Chapter 4: Exemptions: Clause 15 (1)3 This clause states that: “An employer or an employers’ organisation registered in terms of section 96 of the LRA, or any other law..” may apply for an exemption from paying the minimum wage. Comment: The above clause limits representative bodies such as FSA, who are not registered “employers’ bodies”, from being able to make such exemption applications for certain groups of our members. Our 20 000 small-scale growers will not be able to apply for exemptions on an individual basis.. Recommendation: Exemption criteria be made more flexible to allow for representative bodies who are not “non- employer organisations”, to make exemption applications on behalf of their members or for groups thereof.

Schedule 1 (Section 6 (6)): Clause 3 This clause defines a “farm worker” as being a person: “who is employed mainly or wholly in connection with farming or forestry activities…..” Comments: Many plantation forestry enterprises are integrated with “on-site” primary processing activities using the same workforce to perform these duties –sawmills, pole & charcoal plants. These workers live and work alongside each other and share the same benefits and in some cases, work duties. Recommendation: The definition of “farm worker” be broadened to mean a worker who is “employed mainly or wholly in connection with farming or forestry or “on site” primary forestry processing activities..”

Conclusion We would particularly like the Portfolio Committee to consider the following recommendations made. These will assist both the Forestry an Agricultural Sectors in helping to manage the NMW positively. The implementation of the NMW for farm workers be phased in over a minimum period of 3 years. Deductions to wages, as per the current Forestry & Agricultural SDs be maintained in terms of the NMW regulations. The definition of “farm worker” to be broadened to include those working in “on-site” primary forestry processing facilities. The exemption process be extended to allow for bona fide Industry based representative bodies, which are not registered as “employers’ organisations” to apply for exemptions on behalf of their members or groups thereof.

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