The deterioration of the negotiating process in Zambia Sugar, an Illovo Sugar subsidiary, resulted in one hundred and thirty workers being issued a gross misconduct notice on 9 July, some three weeks after workers had staged a strike, being increasingly frustrated by the stalling of negotiations and the company’s refusal to acknowledge their contribution to record profits.
After months of fruitless negotiations that had started on 5 January, the matter that referred to the Industrial Court for determination in early May. At that moment, the company’s offer was for a 15 percent wage increase for permanent workers and a 12 percent for seasonal workers, with no increases on allowances. This was a poor offer: On releasing the financial results for Zambia Sugar for the year ending last March, Illovo said: “Despite lower sugar production, higher sales revenue, combined with effective cost control and the benefit of improved factory productivity resulted in improved operating margins and profit from operations increased by more than 40 percent compared to the previous period. Operating profits increased to ZMK307 billion compared to ZMK174 billion in the previous year.”
On 12 June workers decided to go on strike.
Days later, while the company was reportedly losing 2,000 tonnes of sugar per day, an agreement was signed on 15 June and the strike was over. The agreement granted wage increases of 15 per cent for permanent workers and 12 percent for seasonal workers, both retroactive to 1 April. The lowest salary for seasonal workers is now K891,600 (USD 173.23) and the lowest for permanent workers is K1,495,000 (USD 290.46). The highest salary for permanent workers is K3,335,000 (USD 647.95).
Also agreed were an increase on the Education Allowance for permanent workers, up from ZMK 793,000 to 1,200,000 (USD 233.14) per term, and on travel allowance from ZMK1,900,000 to 2,090,000 (USD 406.06) (A note of caution: the Bank of Zambia quotes official exchange rates to the USD at ZMK 4,694.72 for buying and ZMK 4,714.72 for selling. NUPAAW uses a rate of a ZMK 5,300.)
Three weeks later after the strike was over, the company sent a notice to some 130 workers alleging gross misconduct, charge that carries a summary dismissal penalty.
It has to be noted that on signing the 15 June agreement, NUPAAW general secretary, Godwin Mungala, contested management’s allegations that unionised workers had put fire to cane fields, and said that workers had assured him that they had protected the company’s property while on strike. He added that unionised workers were concerned that the company may retaliate through disciplinary actions, which appears to be the case.
Zambia Sugar is a subsidiary of Illovo Sugar, which is owned by Associated British Foods. On 25 May, Illovo published the financial results for the year ending on 31 March 2012, with headlines that the Group has achieved a 31 percent increase in operating profits.
When itemising the geographic contributions, Illovo reported that Malawi (two sugar estates) contributed with 39% of the operating profits, Zambia (one estate and one farm) with 33%, Tanzania 11%, South Africa 7%, Swaziland 6% and Mozambique 4%. Illovo Sugar operates in six African countries, and a partial list of operations include 11 sugar factories, six sugar refineries, three downstream operations (or by-products) and significant extensions of land.
Operating Profits refer to what a company earns from its normal business, and do not include profits from other investments or the impact of interest and taxes. Basically is revenue minus costs directly related to the company’s core operation, and companies use it to message investors how much of the revenue may eventually become profits.
It’s therefore easy to see how workers and the union in Zambia Sugar became so frustrated with the negotiation process: while the unit they work for contributed a significant 33 percent of the Group’s operating profits, they were offered an increase, which in percentage points, is less half of what the unit they work in produced in operating profits.
With the consolidation of the expansion program in Zambia Sugar which would double production in comparison to two years ago, it should be expected that next year Zambia Sugar’s operating profits would skyrocket. Would the situation repeat itself coming January 2013?