The Sunday Mail
Business Reporter
The recent increase in salaries for civil servants is expected to induce the demand needed to create extra output for manufacturing companies, according to economists and business executives.
They, however, implored the authorities to be alert as some unscrupulous businesses take advantage of the upward adjustment of salaries to unjustifiably increase the prices of goods and services they offer.
Over the past few months, prices of most goods and services, in both US dollars and local currency, have been relatively stable owing to prudent policies by the Government.
But economists warned any unjustified price increases would put upward pressure on inflation, slow aggregate demand and, in turn, lower capacity utilisation.
This week, the Government raised the salaries of civil servants, Members of Parliament, independent commissions, grant-aided institutions and pensioners by 100 percent. The Covid-19 allowances have been increased to US$250 from US$200, and teachers will also get a monthly allowance of US$80.
The increase is with effect from February 1 for the security sector and April 1 for the rest of the civil servants. Salaries and wages for State workers consume nearly half of the national budget.
“The recent adjustment of salaries for civil servants is welcome, obviously because the current salaries were very low,” said economist Professor Gift Mugano.
“A number of civil servants (salaries) were below the poverty datum line. In a way, what it was doing was affecting demand; the aggregate demand was very low and business was feeling the pinch; so, obviously, what we expect is that there be an improvement in demand and help business to push sales,” Prof Mugano added.
If workers have a higher propensity to spend, aggregate demand tends to rise. This, in turn, creates extra capacity for companies to meet the demand and create jobs.
Economic analyst Dr Langton Mabhanga said the upward adjustment of civil servants’ salaries, assuming all variables remain constant, would boost demand for household goods.
“The increase (of salaries) in the largest labour sector of the country is likely to boost demand for manufacturing companies; we will experience a boom in demand,” he said.
“We, however, call upon manufacturers to be rational business people by not responding to the salary increase by raising prices.
“Rather, they should take that as an opportunity to increase volumes.
“They should embrace the wage increment by being responsible; doing what keeps them in business and not unnecessarily raising prices.”
However, there are worries that consumers will end up at the receiving end, amid fears of unfair price increases.
“We need protection from the authorities,” said Ms Gertrude Chaniwa, an airtime vendor in Harare’s central business district.
“We have seen this before; even when the Government pays bonuses; prices just go up.”
“The (foreign exchange) rates, even on the parallel market, have been relatively stable for the past two months but after the announcement, it is accelerating at a faster pace.”
Retailers Association of Zimbabwe president Dr Denford Mutashu urged businesses to desist from “unnecessarily increasing prices.
“This practice has to stop,” said Dr Mutashu.
“It is a value chain problem starting right from the procurement of the raw materials but, unfortunately, that (price) increase can only reflect on products in a shop or wholesale.
“The business should support the initiatives by the Government than perpetuating unethical practices.”
He said a holistic approach was needed to address the problem without necessarily blaming a particular player in the value chain.
Some analysts say it was time to revive the Tripartite Negotiation Forum (TNF) to help achieve consensus on various economic issues such as the pricing of goods and services, as well as minimum wages, among the Government, business and labour.
The Consumer Council of Zimbabwe (CCZ) chief executive, Ms Rosemary Mpofu, welcomed the increase in salaries for civil servants and expected the private sector to “play ball” to ensure incomes are not eroded by unjustified price increases.
“Past experiences have shown that service providers tend to increase their prices whenever there is a salary hike, which then defeats the whole purpose of salary increases.
“The plea is for service providers to be responsible and desist from taking advantage by increasing the prices of goods and services without justification.
“In addition, consumers are urged to be responsible and shun parallel market activities,” said Ms Mpofu.
A survey conducted by CCZ has shown that the parallel market rate has shot from 1 200 to 1 500 per 1US dollar within a week, she said.
“What this means is consumers will still not be able to cope with the price increases if retailers continue to price against the USD parallel market rate. As consumers, we urge Government to keep a very close eye on the activities of the black market players and retailers and all other suppliers across value chains.
“There is a need to ensure that production costs do not go up, as those will automatically be pushed down to consumers.”
