adminHarare Bureau
ZIMBABWEAN businesses have been called to embrace internal devaluation as a short term measure to help achieve economic recovery. Internal devaluation is an economic and social policy option to restore international competitiveness of a country through lowering production or wage costs and increasing productivity without reducing value of the exchange rate.
Experts say the model could be used to achieve increased demand for exports and narrowing of the current account.
In the context of high production costs and pressure from cheap imports, the Affirmative Action Group (AAG) says internal devaluation is a favourable option to industry survival.
“Internal devaluation can be used to restore competitiveness of industries in Zimbabwe. Since we don’t have our own currency to devalue, the option is to devalue labour costs and rates,” said Reginald Shoko, an official from the AAG economics department.
He said some companies were struggling to remain afloat because of choking labour costs and regulatory charges.
Shoko said there was a need for captains of industry and labour unions to sit down and discuss the issue and come up with acceptable wage levels that will give companies a reprieve.
“A pilot programme has been done successfully in the textile and clothing sector. Workers and management have agreed to reduce salaries to a minimum of $100 per month.
“You’ll realise that this sector is on a rebound now and it’s employing more people, especially following the ban on second hand clothing,” he said.
A few companies such as Econet and Delta Beverages have come out in full support of the model and have moved on to cut salaries for their workers and reduced prices for their products.
Shoko said regulatory and utility charges should also be reduced as they were a barrier to industry revival.
The AAG views dovetail research findings by economic think tank Zeparu, which found Zimbabwe to be a high cost country in the region in terms of labour, water, power, transport and ICT logistics costs.
The findings were presented to a Cabinet committee early this year, which recommended a review on costs in order to restore domestic competitiveness.
“Our rates and taxes are too high compared to other countries.
“Again our tax levels on semi-processed products that are used as raw materials are high and that affects local companies,” said Shoko.
“Under these conditions it’s cheaper to import goods and raw materials than export. This affects our companies especially in Bulawayo. We then complain of a huge import bill of up to $4 billion.”
derick.khumalo