Commentary: Wage negotiations, capacity to pay and companies’ aggressive tax strategies

In my thirty-odd years working in the sugar sector, I have been told may times about the argument, when collective bargaining talks are up that union proposals, in particular wage demands, ought to take into account the employer’s capacity to pay. I found the argument as clear as a cup of coffee because I was quite familiar with the ancient and illegal practice of double accounting in my home country where sugar companies were, most of the time, privately owned: one book for the government tax agency; another for the owners. Recent news about “aggressive” taxation practices by transnational corporations, among which some sugar companies are counted, just compound the difficulty to understand what “capacity to pay” refers to, and what economic fairness has to do with all this.

Let’s take the example of Illovo Sugar, the largest sugar company in Africa, with operations in South Africa, Swaziland, Mozambique, Malawi, Zambia and Tanzania.[1]  In many of these countries, given the prevalent real low wages, it’s not strange that collective bargaining is overwhelming dominated by the negotiations on wages and financial benefits, such as bonuses and allowances, issue that directly highlights the employer’s “capacity to pay.”

All Illovo operations usually complete their collective bargaining and wage negotiations in the first half of the calendar year on company-based processes. The exception is South Africa, where negotiations take place under the National Bargaining Council for the Sugar Manufacturing and Refining Industry [2], and a slightly difference case in Mozambique where the sugar workers union, SINTIA, negotiates a basic wage for the sector, which is then taken as a base for negotiations at local level, e.g. Illovo’s subsidiary Maragra Sugar.

Wages Increases in Illovo Sugar subsidiaries (2013)

Illovo Subsidiary (Country)   / Union Wage Increase % Inflation Rate (est. 2012) Wage Increase minus   Inflation
Zambia Sugar (Zambia) /   NUPAAW 15 6.9 + 8.1
Illovo Malawi  (Malawi) / SPAWUM 26 35 – 9.0
Ubombo Sugar (Swaziland) /   SAPAWU 9.5 9.0 + 0.5
Kilombero Sugar (Tanzania)   / TPAWU 10 9.8 + 0.2
South Africa (Sugar   Bargaining Council)* 8 5.9 + 2.1
Maragra Sugar (Mozambique)   / SINTIA N/A

(*) The agreement includes an extra payment of ZAR 200.00 and ZAR 150.00 for employees in Band “A” and “B” respectively, effective in November 2013. (Bands “A’ and “B” in the Paterson classification system.) USD 1.00=CAR 9.80

The largest wage increase was achieved by NUPAAW at Zambia Sugar, which is rapidly becoming the Group’s flagship operation, but workers in two operations (Ubombo and Kilombero) barely surpassed the 2012 estimated inflation rate, while the Malawian workers took a real major hit.

First comment. On Economic Fairness. While we have to resist the temptation to equal increases on operational profits[3] with wage increases, some economic fairness is needed to protect the purchasing power of workers – after all it relates to the economic health of a country.

In the fiscal year to 31 March 2013, Illovo Sugar posted a 41 percent increase in operational profits and 44 percent increase in payments on dividends per share. These figures dwarf all 2013 wage increases in the Group’s operations and salt-rub the Malawian wound, where the two rather small operations produced a mere 17 percent of the total sugar produced by the Group in 2012 (300,000 tonnes of the 1.746 million tonnes) but accounted for an astonishing 39 percent of the Group’s total operation profits. Illovo Sugar (Malawi) reported that operational profits jump from 12.0 billion kwachas in 2012 to 31.1 billion in 2013, and dividends per share went from 795 tambala to 1,465 tambala: an 85 percent increase. (USD 1.00 = MWK 323.00; tambala is 1/100 of a kwacha). All this while the workers lost some nine percentage points on the 2012 inflation rate. Without a union, things would have gone much worse for the workers. In other words, without a union struggle to ensure economic fairness, an employer’s “capacity to pay” has not much to do with their actual financial performance.

A second comment on legal… but immoral tax practices? Many an occasion I’ve been told, and in some others I have witnessed it, how during negotiations management submits some financial information outlining the performance of a company. But, how “real” is the picture outlined by such information when “aggressive” taxation practices come to dinner?

In an article posted earlier on this site ABF, Illovo Sugar and Zambia Sugar in the million-dollar tax dance… and the workers?, we highlighted some findings of an investigation by the British NGO Christian Aid on the financial operations of an Illovo subsidiary, Zambia Sugar. Without being a financial analyst or a tax expert, it’s rather easy to understand where the research leads: (a) to acknowledge there’s nothing illegal in those creative tax avoidance practices[4],  and (b) to ask: if Zambia Sugar did aggressively use the system to reduce taxes payable in Zambia, how reliable is the information about their “capacity to pay”? In other words, if there are legal practices to transfer profits to countries where they are not taxed as heavily as in the country where the profits originate, it’s only logical to think that the financial information will indeed show a less significant “capacity to pay”.

There are of course many other factors influencing a process of collective bargaining and wage negotiations. A crucial one is the unions’ ability to independently collect and process information, including evaluating what an employer’s financial information really represents.

See also:


[1] Associated British Foods (ABF) owns a 51.5 percent stake in Illovo, and its AB Sugar division deals with ABF sugar investments in China, Spain, the UK and Illovo in Africa.

[2] The South African Sugar Bargaining Council comprises representatives from employers (including the three main sugar companies: Illovo Sugar, Tongaat Hulett and TSB Sugar) and three unions organising factory workers: FAWU (an IUF affiliate), UASA and NASARIEU.

[3]  Profits earned on a company’s normal business; they do not include profits from other investments the company may have nor interest or taxes.

[4] Tax evasion is not to pay the taxes owed, an illegal practice. Tax avoidance is the use of legal methods to reduce the taxes to be paid.

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1 comment

    • Miriam Wanyama on June 14, 2013 at 1:45 am

    My goodness! This information is an eye opener to workers and Unions who value their welfare.Any negotiator needs the ability to do a survey on the managements ability to pay.This just tells us that in many occasions we have been awarded raw deals without knowing.I agree now with the book of Joel 4:6-my people suffer because of ignorance.Union officials should read wide and deep and also learn ways of getting some useful information to protect workers from being exploited.Employer have become very tactful and would do anything to ensure that they cut down on costs at the expense of poor workers.To them,it is a humble,polite and organized unfair labour practices.Thank you so much for the information,and as you read pass it on to others through social networks.

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