JOHANNESBURG—President Jacob Zuma has succeeded in avoiding protracted labour unrest that would have hurt his presidency and South Africa's mining industry.
But above inflation wage settlements will cost jobs in due course and push up the cost of living, with Zuma's traditional supporters amongst the poor bearing the brunt.
Leaders of 150,000 municipal workers agreed on Friday to a 13 percent wage increase, less than the 15 percent they had demanded but nearly double the inflation rate of 6.9 percent.
Unions representing gold miners settled for 9-10.5 percent increases earlier this week.
Industrial unrest followed violent township protests this month over the lack of proper housing and medical care and high unemployment.
There may be more tests ahead for Zuma. The strikes made clear that the unions which helped him come to power will not be shy about pressing their demands again.
Crucial unions didn't strike
Unions that could have the biggest impact on the economy, such as the one representing gold and coal workers, reached agreements with employers and did not strike.
The workers' right to strike is enshrined in South Africa's constitution. The latest strike action was seen as muscle flexing, not an all-out assault.
Investors have been unfazed and markets unmoved. They would take serious notice if strikes or protests spread further.
Impact on economy
The economy is under great strain, and recovery depends largely on when the global financial crisis eases.
South Africa already faces a shortfall in tax revenue because of the economic turmoil, and economists believe large pay rises will fuel inflation and force the government to raise taxes, damaging the economy and straining the budget.
Companies may have to resort to lay-offs to keep costs in check until the global and local economy, and profits, recover -- heightening unhappiness and encouraging more protests.
This may also worsen an already dangerously high jobless rate -- including people who have given up looking for work. Just less than one-third of the work force is unemployed.
Economists estimate the pay rises could ultimately add between 0.5 and 1.25 percentage points to inflation over a year.
South Africa has fared relative better in the global crisis than many other countries, thanks partly to a stable banking sector, and decisions, including an infrastructure building programme, taken before the crisis hit.
But the downturn will hit government revenue, making the high expectations for better living conditions hard to meet.
The government has already warned it will come up short -- about 50 billion rand ($6.39 billion) -- in the tax take for 2009/10, and there seems little space to cut spending.
Analysts say taxes and levies may have to rise and the government's 3.8 percent of GDP budget deficit forecast cast aside.
Protesting union members spilling garbage on the streets figured prominently on television and made international news.
But other problems are more pressing, and must be resolved before the country hosts the 2010 soccer World Cup. South Africa has one of the highest crime rates in the world and police have promised to make the streets safe. The government hopes millions of tourists will flock to the world's biggest sporting event and pour millions of dollars into the economy.
The government is also counting on the tournament to bring South Africa international prestige. That priority was made clear on Wednesday when Zuma appointed a new, tough-talking police chief who said he would crack down on crime.
