South Africa will introduce a national minimum wage of 3,500 rand (261 dollars) per month in 2018, Deputy President Cyril Ramaphosa said on Thursday, following protracted negotiations between the government and labour unions.

Supporters of a minimum wage say it can stimulate growth as workers can spend more, as well as reducing inequality.

Critics say it could lead to increased unemployment as employers will be unable to afford higher wage bills.

Credit ratings agencies have said agreeing a minimum wage would help Africa’s most industrialised economy hold onto its investment-grade rating by stabilising the labour market and reducing the number of strikes.

“The balance we have sought to strike is that it must not be too low, so that it doesn’t affect the lowest paid workers, but not too high that it leads to massive job losses,” Ramaphosa told a news conference.

Ramaphosa said the national minimum wage, which equates to 20 rand (1.50 dollars) per hour, would come into effect in May 2018.

Businesses that are unable to afford the minimum wage would be permitted to apply for an exemption of up to 12 months, Ramaphosa said.

The Treasury had also thrown its political weight behind the policy initiative.

Chief economist at Nedbank Dennis Dykes said the agreement was a sign of an improving relationship between labour, business and government, but warned that its implementation needed to be monitored.

“It is by no means certain this will lead to job creation.

“It needs to be watched carefully for any negative effects,” Dykes said.

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