18 May 2014

Zimbabwe: Wages Too High, Causing Company Closures

DOLLARISATION has made Zimbabwe a high cost environment meaning local products are too expensive compared to imports from the region in a development that is also contributing to company closures, an economist has said.

The use of foreign currencies has also seen the government's wage bill spiral out of control with treasury now struggling to pay the State's 230,000-strong workforce.

Zimbabwe ditched its own currency in February 2009, opting to use more stable foreign currencies, ending a decade-long struggle with hyperinflation which nearly brought the economy to complete collapse.

But University of Zimbabwe economist Ashok Chakravarti said the downside of the multiple currency regime is that it made the country a high-cost business environment.

"If you do a study cost in our country in comparison to other countries in the region, in particular in South Africa, local industry cannot compete with imports because of high production costs and this has also contributed to the shut-down companies," Chakravarti said last week.

Dollarisation was a policy dead-end although it had brought stability, he added.

"It (dollarization) has made Zimbabwe a high cost economy and locally produced goods cannot compete against South African products.

"It has also constrained the possibilities of fiscal and monetary policy. The multi-currency regime has technically tied the hands of the government against using the tools which other countries use for development."

Chakravarti also criticised use the Consumer Council of Zimbabwe-determined poverty datum line to peg wage levels in the country.

"This is very unusual that wages are discussed and set by the CCZ," he said.

"I believe that the government has to discuss with workers unions on salary increases and put in place flexible wage legislation. The poverty datum line which has actually become our bible is a figure which is being produced by CCZ.

"This should be the business of a panel of economists or Zimstat, the Confederation of Zimbabwe Industries (CZI) or Tripartite Negotiating Forum, who have more knowledge of our economy."

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