Calls by employees to be paid in foreign currency keep gaining momentum. Tobacco and wheat farmers, civil servants and those in the private sector have joined the bandwagon. To make matters worse, government has now asked for import duty to be paid in forex for vehicles and certain luxury goods. It all sounds unreasonable until one considers the glaring discrepancy between the Bond/RTGS and the US dollar. In a country where about 4 million people are already living in the diaspora, fears of a massive brain drain are not too far fetched. Despite assurances that the bond note is 1:1 with the US dollar, the surrogate currency has been on a free fall in the past three months. This has left the already struggling employees and business at large suffering.
Historical background
Already, the country has been burdened by years of economic decline. The African Development Bank Zimbabwe Economic Report titled “Building a New Zimbabwe: Targeted Policies for Growth and Job Creation” notes that the country has been unable to generate enough jobs with many college graduates unemployed. The report also points out that, as a percentage of total employment, informal employment was 80% in 2004 and 94.5% in 2014. All this in a country where around 59% of the estimated 16 million population are old enough to be employed. This is not a good starting point. Now, the problem is exacerbated by the unstable exchange rate. As I write, one United States dollar is equivalent to anything around Bond/RTGS $3.50. This means a person earning RTGS $1500 per month takes home US $285 in reality. Add the prevalent price hikes to the equation and the employee is left with nothing. Even on the $285, the person is able to buy a lot more in neighbouring South Africa and Botswana.
The struggle to find Forex
The new administration following the November 2017 leadership changes in the country was considered a step in the right direction. Further, the appointment of a reasonably technocratic cabinet was well received. However, despite all the interventions, many businesses are struggling to make ends meet. There is not enough forex to run a basic business. The banks do not have enough as well. On the parallel market the basic law of supply and demand prevails. The more people compete for the available forex, the more the rates shoot up. Due to this, very few companies are in a position to unlock more employment. Most businesses are rather cautious in their approach. Infact, a considerable number of companies have either scaled down or closed shop due to the unsustainable environment. The underlying issues are to do with the uncertainty surrounding the bond note as it continues to nosedive against the US dollar and other major currencies. Those employed by these companies will find it hard to survive. Finding employment outside our borders is now a viable option for them.
Foreign Direct Investment
It is plausible to say that any potential investor looking at Zimbabwe right now is worried and uninspired. With the vast mineral and other resources which we have failed to locally exploit fully, the hope of foreign investors coming to set up shop here continues to fade. Government has signed and announced a number of investments in various industries but, to date, most of these are yet to take shape. Presumably, this is due to our own bureaucratic delays associated with the ease of doing business but, most importantly, the inconsistencies surrounding the availability of foreign currency. In short, we continue to see a very slow pace of employment creation and the skilled population is fast becoming impatient. Although unemployment rates are generally not good all over the region, the pastures look definitely greener and our labour force may be tempted to move there.
The informal sector
The informal sector is the largest employer in Zimbabwe at the moment. In an International Monetary Fund paper titled, “Shadow Economies Around the World: What did we learn over the last 20 years?”, Zimbabwe was cited as the second largest informal economy in the world. However, the informal sector continues to be plagued by lack of capital, inadequate collateral and lack of targeted and meaningful government support. Then comes the forex problem to cap it all. Many informal sector players need foreign currency to import raw materials and products. With the parallel (black) market now illegal, accessing forex is a tall order. Even if they do get the forex, the customers no longer have enough disposable income due to the same problem. The end result, unfortunately, is that the informal traders will take their business elsewhere and Zimbabwe will lose out.
Whichever way one looks at it, Zimbabwe’s labour force is faced with uncertainty and anxiety. Tough decisions will have to be made. Those that are lucky to earn their salaries in forex still have to contend with long fuel queues and limits on basic commodity purchases. If they want luxuries, they will have to look for the forex to import such. The environment is not conducive for most businesses. The fear is that Zimbabwe is on the verge of losing its most valued asset, its human capital.
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