Confidence in South Africa has been waning for some time, highlighted last year by the downward rating of credit agencies and uncertainty displayed by international investors given growing socio-economic tensions in Africa’s powerhouse economy. More recently, the lack of confidence has been pushed to a new level as widespread mass industrial action, at times militant, takes place in various sectors to mark the start of the year’s “strike season.”

The labor conflicts have been harming the already vulnerable growth outlook forSouth Africa’s economy even further. A mere 0.9-percent GDP growth was recorded in Q1 2013, down from 2.5 percent in 2012. In Q2 2013 growth rebounded to 3 percent, but is unlikely to top 2 percent with the adverse impact of current strikes still to be calculated.

The contagion of industrial action has made headlines in the automotive, construction and mining industries. While such strikes and wage negotiations impact the South African economy regularly, what differentiates these negotiations from those previously, are the high pay demands requested by unions for their members, in a still-struggling economic climate felt by local and international companies alike.

Continued labor relations challenges in the mining sector have particularly shaped perceptions and further fueled the loss of confidence by investors. With 80,000 gold miners striking from work on September 3, it is estimated that this will cost the country’s already struggling gold industry more than $3.5 million per day. The National Union of Mineworkers (NUM), the largest union representing workers in the mining sector, is demanding a 60-percent wage increase for gold mine workers and has suggested that strikes could drag on for weeks.

The wage increase demands are spurred on by the fact that, now, more than one year after the tragedy of the killings at the Marikana mine strikes, change in the mining industry has been slow. Top mining executives continue to reap exorbitant rewards, while mineworkers consider themselves to be poor; although, according to estimates by South African economist Mike Schussler, miners (particularly rock drill operators) fall into the top 25 percent of earners that are formally employed.

Beyond local production disruptions due to widespread labor unrest, and a continuously weakening Rand (South African currency), challenges of  slacking global economic conditions continue to persist. In recent months this included sluggish export demand in Europe, the end of the Fed’s stimulus, which is impacting capital movements from emerging markets, and, particularly affecting the mining industry, the slower and less resource-intensive growth figures inChina, which have been mirrored in softer international commodity prices.

These factors combined with recent power blackouts (and delays at Eskom’s new Medupi power plant due to ongoing strikes) and increased inflationary pressures, have contributed to South Africa being a laggard in its own region. The African continent is expected to record growth rates in excess of 5 percent in 2013. They have also implicated the country’s international competitiveness, withSouth Africarecently having lost the position of most competitive economy in Sub-Saharan Africa toMauritius. It comes as no surprise that this latter slippage has been spurred largely by tensions in the labor market as well as failing education and health systems.

Despite recent substantial development plans by the government to boost output, with a multi-billion dollar focus on transport and infrastructure construction,South Africacontinues to grow below potential. A paper released by the South African Reserve Bank (SARB) estimates that through the creation of a greater enabling environment for foreign and domestic investment, coupled with a reduction of the skills constraint and lower input costs, restrictions to growth could be overcome. In fact, addressing these issues could double or even triple GDP growth rates. Yet this cannot be achieved without a social compact and increased trust between government, business and labor, which is currently lacking.

With the 2014 elections fast approaching, the ruling government has increasingly come under pressure to meet service delivery and job creation promises. Making a dent in unemployment numbers, with about a quarter ofSouth Africa’s work force not having jobs, will however only be achieved at 5 percent growth or more. What is required is the right leadership to address the persisting wealth gap, the lack of growth and pessimistic outlook for the country internally, before it can be expected that external actors will have confidence inSouth Africa.CA

(The author is Head of Research & Strategyat Frontier Advisory.)