Business Editor’s Brief: Companies to be wary of slimming to death

16 Aug, 2015 - 00:08 0 Views
Business Editor’s Brief: Companies to be wary of slimming to death

The Sunday Mail

NATURE has fascinating anecdotes that tend to mimic real-life situations and circumstances, and the way a python kills its prey is one such spellbinding occurrence.

1408-1-1-GRAPHICThough this reptile belongs to a group of fearsome species that are dreaded for their bite and venom, the python is cursed for not having any such attributes.

It is, however, blessed with an awesome power to squeeze life out of its potential meal.

Once coiled on its victim, the python has a reputation of maintaining a deathly grip, and once a victim tries to adjust in order to suck in life-giving oxygen, the snake further fastens its hold, making it more and more impossible to breath.

Life in the prey eventually fades away.

By trying to breath, the prey further condemns itself.

And so it is with local companies that are trying to catch a breath by releasing “excess” workers.

While it cannot be contested that some companies inherited inherently unsustainable structures from the Zimbabwe-dollar era, are wholesale job cuts the solution, or part of the solution? And if they are part of the solution, can we actually claim that we now have relatively efficient companies after the staff restructure?

Yes, wage bills have been an albatross around the neck of both the public and private sectors.

But are the wage bills a result of many workers or they are a result of relatively high wages and salaries.

Academics often say correlation does not imply causation, which simply means that in some circumstances a correlation between two variables does not necessarily imply that one causes the other.

The January 2015 Monetary Policy Statement provides an instructive insight into the structure of the local wage bill.

Macro-economic indicators show that the country’s commercial and industrial minimum wage at US$246 is much higher than Zambia at US$157, Malawi US$34, Tanzania US$63 and Ethiopia which currently has the highest growth rate on the continent at US$36 and Mozambique at US$133.

It is therefore unsurprising that the country’s wage bill at US$3,2 billion is markedly more than the wage bill of Zambia, Tanzania, Botswana and Mozambique at US$2,4 billion, US$2,6 billion, US$1,7 billion and US$1,8 billion, respectively

Had Zimbabwe’s economic performance been competitive, nothing could have been wrong with such figures.

But the local economy at US$14 billion is smaller than its peers.

Neighbouring Botswana, despite having a relatively smaller population than Zimbabwe, produces more as its economy is valued at US$36 billion.

The Reserve Bank of Zimbabwe (RBZ) had instead proposed salary cuts rather than job cuts.

The proposal was however made within the context of an environment where the cost of living is being managed down.

Notwithstanding that wages and salaries remain relatively high, especially for unskilled workers, salary cuts cannot be envisaged in the current environment where costs remain uncompetitively high.

Therein lies the problem.

Zimbabwe’s cost structures simply have to go down.

The continued depreciation of the South African Rand against the US dollar is not making it any easier.

Estimates suggest that 60 percent of the country’s retail shop space is dominated by foreign commodities, especially from South Africa.

So while we shed jobs, we continue to pay mostly South African workers who produce the commodities that we consume.

In the January to June period, the country has so far spent more than US$3,1 billion on imports.

But it seems that local companies that are trimming their workforce are doing so on the premise that they will naturally be able to recover and in the process rehire again.

Local manufacturers have many internal and external factors working against them.

David Whitehead, for example, is still operating machinery acquired in the 1940s and sincerely hopes to compete with the cheaper Chinese textiles.

Besides antiquated machinery, some of the business models are now out of sync with contemporary business demands.

All these hygene issues need to be attended to.

There is also a host of cost drivers such as municipal tariffs, environmental management fees, utility prices such as electricity, water and licensing requirements.

Government is aware of all this and has since established the National Competitiveness Commission to come up with a competitive model for local business.

It is however the slow pace with which such reforms are progressing that is worrying.

Of course when the window afforded to companies by the Supreme Court judgment of July 17 finally closes most businesses would have managed to get rid of unwanted labour and renegotiate contract terms with their employees, but this is just one piece of the puzzle.

Without wholesomely solving issues surrounding the competitiveness of local products, it will be difficult for many companies to escape the deathly grip of the current economic circumstances.

And this needs to be done with the urgency that it deserves.

Job losses and subdued company performances have the adverse effect of affecting revenue flows to the fiscus.

Recent statistics from the Zimbabwe Revenue Authority (Zimra) indicate that individual tax collections in the first six months of the year slumped 12 percent US$390 million from a year ago on retrenchments and company closures.

Similarly, the portion of income hived off companies through corporate income tax also tumbled 15 percent from a year earlier to US$167 million.

The trade-off where companies are allowed to realign their wage bills in return for efficiencies that are likely to benefit the economy has to work or this will have unintended consequences on the local economy.

Feedback: [email protected].

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