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Harare Bureau
THE Confederation of Zimbabwe Industries says the government should put in place a legislative framework to allow employers to enter into new contracts in order to bring down the wage bills.
Reducing employment costs would be part of an internal devaluation process to enhance competitiveness of local producers who are being crowded out of the market by cheaper imports, CZI president Busisa Moyo said.
He said that the government and companies were grappling with unsustainable wage bills, which should be reduced by between 30 percent and 40 percent.
The CZI president said suggestions made by institutions such as the International Monetary Fund that the government should allow market forces to address issues around the cost of doing business would not work in an environment where there are state monopolies.
The magnitude of the problem relating to cost of labour in Zimbabwe is ably demonstrated by the government’s cost of employment, which gobble more than 82 percent of the national budget.
The businesses in the private sector face a similar challenge.
The Reserve Bank of Zimbabwe is on record calling for internal devaluation in the wake of an overly strong dollar relative to other currencies of Zimbabwe’s trading partners, making it uncompetitive while giving advantage to imports from low cost producers.
Use of a basket of foreign currencies since 2009, dominated by the greenback, means the RBZ lost money policy autonomy and tools to influence liquidity and the cost of finance in the economy. Cost of funding is one of the major cost drivers in Zimbabwe.
The CZI president identified three major factors he singled out as the reasons behind lack of competitiveness for local firms namely; strong dollar, high cost of production and lack of efficiencies.
He said depreciation of other currencies against the dollar, especially the rand is a major factor in competitiveness of local products.
But he pointed out that Zimbabwe was already 40 percent to 45 percent more expensive than its regional competitors prior to the down spiral of the rand against the greenback for most of last year.
And so when the dollar started appreciating against the rand, local products became expensive because of the high cost of producing in Zimbabwe, including labour.
“Most companies are reeling from a wage bill they cannot afford,” Moyo said.
He said labour was the domestic resource Zimbabwe can tinker to cut costs, but pointed out that companies would also need to restructure and undertake certain reforms.
He also noted that besides the effect of the dollar, Zimbabwe is generally a high cost production centre with a cocktail of cost drivers including wages, utility rates, power and water, which he said all need to come down by at least 30 percent.
Zimbabwe is ranked poorly on the global doing business rakings and the government is working on a programme to review all aspects of the doing business environment to attract foreign investment.
“A new legislative framework is required to give people the right to negotiate new contracts.
It would allow us to bring down costs by 30 percent to 40 percent. If we devalue, prices will come down.
But to achieve that rates must come down, cost of living must come down.
We need to look at what people are paying to Zesa and cost of water needs to come down,” Moyo said.
He said internal devaluation would address the cost production environment, which investors consider before deciding to bring efficiencies that enable them to compete globally.
Local companies, especially those in manufacturing, are also battling to be competitive due to antiquated equipment, which makes it costly to produce and difficult to match the prices of imports.
Online Reporter