The head of one of Zimbabwe’s largest asset management companies has a view on wages and salaries that the country’s labour unions will hate.
Civil servants and other unions are demanding minimum salaries of between US$500 and US$550 a month, which they argue was what they earned before Finance Minister Mthuli Ncube began currency reforms in October 2018 that ended the 1:1 parity between the US dollar and the local currency.
John Legat, CEO of Imara Asset Management, disagrees. Nobody earned that much then in real terms, and government and other employers must not fold to such demands.
“Rising prices are resulting in higher wage demands not just from the public sector unions but also within the private sector. It will be critically important though that real wages are contained,” Legat writes in Imara’s latest note to investors.
“Demands that USD wages should return to October 2018 levels make little sense since wages at that time were not actually being paid in USD but in RTGS$. RTGS$ were worth 50% of a USD at that time.”
Legat insists RTGS$500 was really worth US$250 in September 2018.
“After the announcement of the introduction of USD nostro accounts in the MPS of October 2018, when Government first broke the illusion that an RTGS$ was a USD, the rate collapsed from 2 to 1 to 8 to 1.”
Government, Legat says, must “therefore not cave in to demands to restore USD wages back to September 2018 RTGS$ levels”.
A fair wage
Unions see it differently.
In 2019, the Zimbabwe government reintroduced the Zimbabwe dollar, ending a decade-long period of dollarisation. Through Statutory Instrument 33 of 2019, government-backed Ncube’s move to stop pegging the Zimbabwe dollar to the greenback.
These steps eroded the value of workers’ earnings, according to Zimbabwe Congress of Trade Unions president Florence Taruvinga.
“The gesture to pay bonuses in US dollars is a direct admission that the current wages and salaries are worthless hence the need for a holistic approach to the challenge,” Taruvinga has said.
Civil servants now refuse to negotiate for Zimbabwe dollar wages, according to a letter this week from Cecilia Alexander, who heads the Confederation of Public Sector Trade Unions, to Public Service Minister Paul Mavima.
“It was demonstrably clear that the exchange-rate distortions and the resultant inflation no longer allow for meaningful Zimbabwe dollar negotiations, hence the need to focus on USD being the currency that is ruling the market,” Alexander says.
The lowest-paid civil servant earns Z$18,000 per month, according to Alexander. This is US$154 at the official exchange rate, but just under US$80 on the more widely used black market. Civil servants also get a US$75 allowance, but this is not enough padding against rising inflation, which reached 60.61% this month. One person needs about Z$8,496 per month just to afford the basics and stay above poverty, according to Zimstat price data for January.
According to Legat, the root of the standoff is in the dollarisation era.
“The big mistake the public and private sectors made post dollarisation in 2009, was to increase USD wages steadily and at high annual percentages to the extent that Zimbabwe had become uncompetitive by 2013 and was burdened by an expensive workforce,” Legat writes.
Ncube says his fiscal measures have cut the percentage of wages to government expenditure to 31% from around 60% around 2013. In 2017, 92% of government revenues were going to the wage bill; now it is under 50%.
But while this looks good on Ncube’s books, critics say this has been at the expense of workers, denied a living wage.
However, for Legat, a big wage bill must not be repeated.
“Indeed, almost all government revenues were consumed by public sector wages. This has to be avoided this time around. Our fear however is that with elections looming in 2023, and with some IMF loose change in the kitty, public sector wages will steadily rise in 2022, with the danger that Zimbabwe will find itself right back where it started in 2017, with a bloated and expensive civil service.”