DEMAND FOR HIGHER WAGES A BURDEN ON ECONOMIC

UNCLAS SECTION 01 OF 03 HARARE 000531

SENSITIVE
SIPDIS

AF/S FOR B. WALCH
DRL FOR N. WILETT
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
STATE PASS TO USAID FOR J. HARMON AND L. DOBBINS
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN

E.O. 12958: N/A
TAGS: EMIN ETRD PGOV PREL ZI ECON EAGR
SUBJECT: DEMAND FOR HIGHER WAGES A BURDEN ON ECONOMIC
RECOVERY

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SUMMARY
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1. (SBU) A survey of Zimbabwean-based businesses in mid-June
revealed that foreign currency-denominated wage demands are
becoming a critical challenge to an economic recovery given
continued low productivity levels. A hyperinflationary
mindset remains amongst workers, despite stabilizing prices,
leading to regular calls from labor to raise wages. Unless
the wage issue is successfully addressed by linking salary
increases to productivity improvements, businesses will be
unable to produce competitively for either domestic or
international markets. END SUMMARY.

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It was easier to pay workers during hyperinflation
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2. (SBU) In mid-June, econoff and econ specialist met with a
series of Zimbabwean business leaders to gain an
understanding of the pressures wage demands are placing on
Zimbabwean industries in the current dollarized,
post-hyperinflationary environment. We spoke with
representatives of the agricultural, manufacturing, apparel,
construction, and mining sectors who collectively were
struggling to avoid layoffs and meet employee payroll
demands.


3. (SBU) Most companies interviewed stated that they were
able to carry a larger workforce during hyperinflation
because it cost them little in U.S. dollar terms to pay
Zimbabwean dollar-denominated wages and allowances. The
crashing value of the local currency allowed businesses to
convert a few U.S. dollrs into Zimbabwe dollars at the end
of each month to pay wages and buy food hampers for workers
or pay them in the company's product. The chairman of the
agricultural firm Interfresh, Lishon Chipango, explained that
until dollarization occurred, the company paid only about 20
percent of wages in cash and supplemented wages with produce.
Sino-Zimbabwe Cement Company's General Manager for
Administration, Mr. M. D. Moyo, told us that by January 2009
the company was paying all of its workers in bags of cement,
which the workers then sold for foreign currency. According
to him, this created a conflict of interest as salespeople
were selling both company products and their own. Between
September 2008 and the adoption of dollarization in January
2009, the company supplemented salaries with food hampers
that cost little in U.S. dollar terms.

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Wage demands not linked to productivity
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4. (SBU) Following dollarization, companies are struggling
to find sufficient foreign currency from sales to pay wages
because of a general shortage of foreign-denominated cash in
Zimbabwe. According to the President of the Matabeleland
Chamber of Industries, Dumisani Sibanda, the average wage in
the manufacturing sector is US$100 per month. Most companies
interviewed stated that even these salaries are excessively
Qinterviewed stated that even these salaries are excessively
high given productivity levels. Not all firms we spoke with
complained about salary demands. For instance, the Managing
Director of apparel exporter Styles International Private
Limited, Chitranjin Laxmidas, told us that his company's
salaries ranged from US$100 to US$300 per month.

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Businesses pleased with skills of workforce...

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5. (SBU) All of the businesses with whom we spoke expressed
satisfaction with the skills of Zimbabwean workers. The
apparel sector in particular was eager to grow its workforce
under the right conditions. Laxmidas and David Lasker, the
Chief Executive Officer of Archer Clothing Private Limited,
praised the high level of skills and strong work ethic that
remain in Zimbabwe despite the exodus of skilled workers over
the past decade. Laxmidas showed econ specialist
applications for a junior bookkeeping position with the
company that demonstrated high levels of education and
experience. Such companies have also worked to maintain
industry skills. For example, Laxmidas trains about 15 to 20
staff every three months and draws new staff from local
technical colleges. The company aims to increase its staff
from around 60 people to about 250 over the next six to
twelve months as it ramps up exports.

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...Though some still forced to downsize...
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6. (SBU) Banking specialists noted that new layoffs were
occurring because companies inefficiently carried excess
staff during hyperinflation. This is no longer possible in
today's dollarized economy. Some businesses were also
skeptical of how quickly the economic turnaround would occur,
making them reluctant to sink unnecessary levels of hard
currency into increased payroll. Others continued to carry a
larger workforce to compensate for the frequent sudden loss
of workers as they chose to leave the country or could no
longer afford transportation to work; these issues are
abating.


7. (SBU) Archer Clothing Private Limited, for example,
down-scaled its workforce from 1,500 in November 2008 to
1,000 because of restructuring which resulted in the adoption
of leaner production techniques that shortened the assembly
line. Archer pays workers an average of US$93 per month but
dropped all other incentive schemes, such as performance and
attendance bonuses. However, Lasker told us that the company
expects workers to meet minimum productivity standards in
exchange for a steady foreign currency wage. Zimplow Ltd.
CEO, Tiny Rowland, said the company has scaled down its
workforce from 550 to 400 but should optimally be at about
375 employees.

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...In the face of growing pressure for untenable wages
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8. (SBU) The Matabeleland Chamber's Sibanda said that
workers were demanding wages that were unaffordable to
business. The manufacturing sector is trying to accommodate
workers' demands by paying higher salaries, but they offset
this by putting workers on half time. Sibanda told us that
businesses are also under pressure to contribute to the
National Social Security Authority's pension scheme, which
QNational Social Security Authority's pension scheme, which
was raised from 3 percent of the wage bill to 4 percent prior
to dollarization. Treger Holdings Financial Director,
Charmaine Kerr, identified labor as the company's primary
pressure source. She said Treger struggles to pay its 5,000
workers. Kerr complained that even though the company
already had a payroll of one million dollars per month, labor
was demanding more. According to her, Treger cannot afford
increases in the current environment and is therefore going
to lay off 400 employees in July 2009.


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9. (SBU) Econ specialist's meeting with Bata Shoes was
cancelled due to a worker strike and we learned from
Sino-Zimbabwe that Bata workers had successfully lobbied for
higher wages several weeks earlier (workers had been paid
US$45 per month),but were now pushing for more. Mining
executives also complained that the labor unions were asking
for "crazy" wages of about US$450 per month, which mining
executives say won't happen because it is unsustainable under
the current economy. They added that most mines already
provided services o workers such as housing, schooling, and
medical care which, along with wages, amounted to about
US$400 per month.

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COMMENT
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10. (SBU) In an environment of high input costs, limited
capital, rising utility prices, and low productivity,
Zimbabwean businesses are being further pressured by
increasing wage demands from labor. Unless labor costs rise
in concert with future growth in productivity and
consequently profitability, economic recovery will be slowed
and formal employment will continue to stagnate or even
decline. END COMMENT.

MCGEE