South Africa's new minimum wage is the 'beginning of a long, difficult process,' finance minister says

Key Points
  • South Africa's introduction of a minimum wage marks "the beginning of a long, difficult process," Minster of Finance Nhlanhla Nene has told CNBC.
  • Africa's most industrialized economy introduced a minimum wage of 20 rand ($1.58) per hour earlier this week. The change was originally intended for May 1 but was delayed over adjustments made to the legislation.
  • South Africa is one of the most unequal societies in the world, and infamously suffers from high unemployment. This was 26.7 percent in the first quarter of 2018.
Around 1,500 members and supporters of the South African Federation of Trade Unions take part in a march through Cape Town city center on April 25, 2018, to protest against the government's proposed minimum wage.
Rodger Bosch | AFP | Getty Images

The introduction of South Africa's new minimum wage is the start of a "long, difficult process," the country's minister of finance said Thursday.

South Africa's parliament passed a minimum wage bill by a large majority on Tuesday, meaning that millions of workers will now earn 20 rand ($1.58) per hour. This is equivalent to 3,500 rand ($277) per month.

"It's the beginning of a long, difficult process, because at the end of the day we've never had (a minimum wage)," Nhlanhla Nene told CNBC on Thursday at the OECD conference in Paris.

The minimum wage was due to be introduced on May 1 but was delayed due to government bodies redrafting legislation. South Africa's main opposition party, the Democratic Alliance, opposed the bill. The country's second-largest trade union, unhappy with the proposed wage, organized a strike in April calling for a higher figure.

South Africa's Minister of Finance Nhlanhla Nene speaks to reporters at an investor event in London, U.K., on March 13, 2018.
Simon Dawson | Bloomberg | Getty Images

South Africa is one of the most unequal societies in the world. According to the World Bank, the poorest 20 percent of South Africans consume less than 3 percent of the country's total expenditure. Meanwhile, the wealthiest 20 percent account for 65 percent.

Introducing a minimum wage could help alleviate this, and also stimulate much-needed economic growth by boosting consumer spending. South Africa's consumer price inflation has been on a largely downwards trajectory since early 2016, hitting a seven-year low of 3.8 percent in March. But, in April it rebounded to 4.5 percent as a result of price rises in product groups that are specifically taxed, according to Statistics South Africa.

But, some fear that a minimum wage could lead to a rise in unemployment, already at 26.7 percent for the first quarter of this year.

While Nene acknowledged that laying off workers could be an "unintended consequence," he argued that the new legislation has provisions to "protect" jobs, allowing for businesses struggling to pay their workers to submit to the government for an exception.

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Establishing a minimum wage has been a key proposal of South African President Cyril Ramaphosa since he took power in February. Appeasing the country's electorate may be on his mind as he faces election in 2019.

Mixed reaction from major trade unions

South Africa's largest trade union group, the Congress of South African Trade Unions (COSATU), welcomed the news.

The minimum wage means that the incomes of 6.4 million South Africans will rise, Matthew Parks, COSATU's parliamentary coordinator, said in a statement reported by Reuters. "This is equal to 47 percent of workers and will directly benefit half the nation."

But the second largest trade union bloc, the South African Federation of Trade Unionists, said that it was "disgusted" by the news, adding that the government had bowed down to "white monopoly capitalists."

It is pushing a living wage of 12,500 rand and has said that more protests are planned.