b.         Impact on Sugar Mills                                                                                   

 

                        i)          Social and Community Services

 

The history and geography of the sugar mills has dictated that the sugar companies provide social services out of their own resources in order to maintain a good quality of life for their employees, and in order to ensure that good environmental practices are adhered to, including other social welfare interests. These mills are located in areas which were remote in nature with no good infrastructure connecting them to the industrial centres of Matsapha and the capital towns. This has required the mills to maintain a minimum standard of social services.

 

The industry is now running what is termed industrial/company towns in Mhlume, Simunye, Tshaneni, Tambankulu and Big Bend. These towns provide an array of social services to employees, their families and neighbouring communities. The amenities provided include housing, clean water reticulation, sewage, electricity, refuse collection, good roads, crèches, primary and secondary schools, technical education facilities, clinics, hospitals, sporting and recreational facilities and clubs. The companies had no option but to provide the services and the staff to run them if they wanted to operate their businesses in those centres. The premium prices obtained in preferential sugar markets have enabled the companies to continue financing these amenities including improvement of quality and standards. While it can be argued that this model of social services provision has out-lived its usefulness in a time of increasing global competitive pressures, the financing of these services cannot simply be abandoned or simply handed over to the state immediately.

 

The impact of EU sugar sector reforms on revenue however mean that the estates and large farms are poorly placed to continue historical levels of funding. As such, as soon as the price reform in the EU sugar market became a prospect, some of the companies (in particular both RSSC and Ubombo Sugar) began programmes of rationalization. RSSC has, for example, withdrawn some medical services, closed some clinics and restricted the hours of access at others. Some “municipal” services were outsourced. Because of the need to retrench workers as part of a restructuring and adaptation exercise, many company houses will stand empty. Furthermore, the cost of maintaining the remaining ones presents a stretch on resources for most of the companies.

 

As the companies relieve themselves of the ‘extra’ services, and concentrate on their core business, continuous provision of social services at current standards is standing at a high risk point. This is against an environment where their need will be felt even more given Government’s inability to take over the provision and running of these services. For optimality, it is important that the companies remain able to provide a good portion of these services. It is difficult as yet to estimate how the companies will react to the reforms, in terms of services to be cut, as that will depend on the development of a model (see next chapter), but it is clear that attempts in the direction of reducing their involvement in social services are favoured by the EU reforms, and similar challenges to their revenue streams.

 

The table below shows the level of involvement that the two major companies seek to have in the coming period in response to the need to cut their expenditures on social services. After the rationalization exercise, the two companies are still budgeting to incur, annually, the amounts shown in Table 22.

Table 22:   Budgeted Expenditure on Housing and Social Services (Emalangeni)

Company	Housing and Social Services	Education Services	Health Services	Security	Totals
RSSC	8,436,000	9,033,000	9,246,000	8,166,000	34,881,000
Ubombo	10,149,000	2,694,000	7,180,000	3,280,418	23,303,418
Total	18,585,000	11,727,000	16,426,000	11,446,418	58,184,418

 

                        ii)         Employment levels

The effect of the currency appreciation can be used to show the effects of the EU price cuts on the industry, as both processes have involved a cut in the price received by industry. In response to a reduction in export earnings, some of the companies have embarked on programmes to reduce their workforce, and thus the related costs of maintaining them. The number of workers directly employed by RSSC, for example, has dropped by 48% through outsourcing and retrenchment.  The equivalent figure for Ubombo is 46%, as is shown in Table 23.

Table 23:  Reductions in work force numbers from previous years to 2006

		RSSC				Ubombo
		Prev.	2006	ch	%ch	Prev.	2006	ch	%ch
Perm-anent.	M-C-P	1722	1057	665	38.6		757
	Factory	834	447	387	46.4		476
	Support	1047	324	723	69.1		214
	Total	3603	1828	1775	49.3	2444	1447	997	40.8
Seas- onal	M-C-P	1710	895	815	47.7		1107
	Factory	134	49	85	63.4		9
	Support	48	36	12	25.0		24
	Total	1892	980	912	48.2	2125	1140	985	46.4

            Source: RSSC and Ubombo

In anticipation of the price decline in the EU sugar market, the industry is already engaged in a substantial restructuring exercise with respect to its levels of staffing. The retrenched staff is adding to the pool of unemployed, while the economy, at its present level of performance, does not offer any capacity to absorb them in other sectors.

 

More than 3000 workers have been retrenched by the sugar industry in the past 2 years, and are poised to continue doing so. This is a huge number given that it represents close to half the workforce. Given the contribution of the sugar sector to overall employment in the agricultural sector and the wider economy, the impact is horrendous for an economy already plagued by problems of high unemployment and poverty. Given the links between formal sector employment and avenues out of poverty this trend is particularly worrying in terms of its consequences for the overall levels of poverty in Swaziland.