South African businesses faced a multitude of challenges during the preceding financial year. Load shedding posed a significant obstacle, disrupting operations and increasing costs. The railway freight logistics sector also grappled with security challenges, including cable theft, vandalism, and track theft. These security breaches disrupted schedules and inflated transportation costs and had a cascading effect on some sectors, which rely heavily on efficient and secure freight transportation.

South African businesses face a complex and multifaceted challenge, further compounded by factors such as the construction sector’s struggle with organised crime, commonly referred to as the “construction mafia.” This confluence of various factors creates a climate of significant operational hurdles for companies across multiple industries. While each of these issues, such as load shedding and security breaches on the railway network, poses a formidable obstacle, their simultaneous occurrence amplifies the severity of the situation. Unfortunately, the lack of tangible solutions from the current government to address these pressing concerns further exacerbates the difficulties many businesses face.

This is further highlighted by a recent analysis by leading business consultancy firms, including SME South Africa and RSM Global, underscoring the detrimental impact of sustained inflation on businesses over the past two years. This inflationary environment has increased supply chain costs and compressed profit margins for many organisations. Compounding these challenges are persistent load shedding, unfavourable exchange rates, and rising lending rates, creating a convergence of pressures on overall financial performance.

In addition to these challenges, businesses face additional pressure through an ever-increasing wage bill. It is with these and other challenges in mind that when it comes to looking to the financial year ahead and knowing that generally employees look for wage increments during the year, businesses need to be able to navigate their budget with the potential inclusion of the annual wage increment for employees, if at all possible. While it is well known that the current economic landscape is not generally conducive to wage increases for employees, especially for many Small to Medium enterprises, a wage increase can have positive correlative effects on employee satisfaction, retention, and overall organisational performance.

As businesses strive to attract and retain top talent in competitive markets, the annual adjustment of wages remains a challenging obstacle for a large number of companies. The process of budgeting for these increments is not without its challenges either, particularly when external events, as mentioned above, throw carefully laid plans into disarray. Consequently, if businesses are to consider potential wage increases, key factors that should be taken into consideration when budgeting for the upcoming financial year pertaining to wage increments are the National Minimum wage, the Consumer Price Index, and inflation.

Involving employees in the decision-making process regarding annual wage increments can cultivate a sense of transparency and trust. Regular communication about the rationale behind adjustments, coupled with opportunities for feedback, fosters an environment of mutual understanding and may also assist in employees not having unrealistic expectations.

The very real challenges to many South African businesses pose a significant hurdle to remaining lucrative and productive in the current economic climate, especially given the ever-present, ever-increasing wage costs. Given this, though, where it is possible for businesses to do so, wage increments should be considered and budgeted for if possible due to their positive correlative effect on employee performance. Where it is not feasible for businesses to increase wages in the upcoming year, it may be helpful to engage with employees and manage expectations in the future to minimise any dissatisfaction that could arise.

Article by Ernest Masypye

Senior Collective Bargaining Co-ordinator at Consolidated Employers Organisation (CEOSA)