While a hike to the National Minimum Wage (NMW) in South Africa was needed, the 9.6% increase that was ultimately implemented puts small and medium businesses in a precarious position and could be the end for many.

This is according to attorney and National Collective Bargaining Co-ordinator for the Consolidated Employers’ Organisation (CEO), Daniel van der Merwe.

Van der Merwe said that the NMW wage increase announced on 21 February 2023 has sparked concern for the sustainability and possibility for survival of Small to Medium Enterprises (SMEs) across South Africa.

This sector is collectively the country’s largest employer, he said, and the size of the increase has left many feeling like inputs from the sector in finding a fair level for the hike were ignored.

“In September 2022, the National Minimum Wage Commission published a report on the possible adjustment of the NMW and called for public comment.

“The Consolidated Employers’ Organisation (CEO), being one of few employer organisations that protect the interests of small and medium-sized businesses, responded to the call for commentary and expressed great concern regarding the sustainability of SMEs given the current economic climate and prevailing economic conditions were the NMW to be raised significantly,” he said.

Following the initial commentary process, the Commission published a follow-up report in December 2022 in which they recommended – in spite of all the risks pointed out by CEOs and other organisations – an increase of the NMW in the region of 9%.

Despite the efforts to persuade the Commission to implement an increase that was sustainable for all parties, the NMW has been increased by “the drastic amount “of 9.6%.

Confusion over the increase was also expressed by other employers, such as Global Business Solutions, which said that the hike – ostensibly based on late 2022 headline inflation numbers plus 2% – were out of step with the current economic situation in the country.

“Inflation is falling, both in South Africa and around the world, and economists predict it to be within a range, on average, of between 5% and 5.5% for this year. This increase of 9.6% is a whopping 4.1 percentage points above the most conservative prediction that the range of inflation would be,” it said.

“In these tough economic times, this is inexplicable. With our ongoing electricity crisis and other problems besetting the operating environment, a lot of businesses, especially small and medium-sized firms, are not likely to absorb the shock of such a high increase. Unfortunately, jobs and employment opportunities will be lost.”

Van der Merwe said that the hardships faced by many minimum wage earners in South Africa and the dire economic circumstances they find themselves in could not be ignored, and the purpose of the NMW is to ensure a living wage.

However, the challenging environment in South Africa has created hardships for wage earners and SME employers alike.

“SMEs are held hostage by ever worsening load shedding and lower labour productivity levels, which have given rise to increasing unemployment levels. The plight of SMEs seems to be totally ignored in the interests of short-term political gains,” he said.

“It is illogical to place already-overburdened employers in a more perilous position rather than looking for ways means to stimulate the economy and create more jobs.”

Van de Merwe warned that the decision to increase the NMW would almost certainly kill off many SMEs already standing at the precipice of liquidation.

“It is hoped that the realisation that these organisations are highly susceptible to factors such as rising costs and load shedding will dissuade the NMW Commission in future from imposing such punitive measures on an already-struggling sector of the economy.

“Focus should be directed at rectifying the issues within economy, stimulating growth and looking for ways to weed out corruption and create employment,” he said.