Waning aggregate demand takes toll on Zim firms

August 4, 2022

LIVINGSTONE MARUFU

 

Zimbabwe companies are worried over waning aggregate demand for their products amid surging inflation, which has significantly eroded workers’ salaries and purchasing power.

Zimbabwe’s annual inflation raced to 257% in the month of July from 192% in June.

The Confederation of Zimbabwe Industries (CZI) said the current economic status where there is exchange rate instability and soaring inflation implies that a delay in the salary reviews will lead to hardships as the purchasing power of salaries is eroded at a fast pace.

“Salaries will not keep pace with the (inflation and exchange rate) increases, resulting in the purchasing power of workers being eroded, causing reduced demand for goods and services, poor living standards and low economic growth,” CZI said.

“This will certainly cause a reduced capacity utilisation and closure of some operations.”

In its latest report on collective bargaining, the CZI said some companies were reducing or totally removing the US$ components to contain costs.

CZI said this will create adverse inflation expectations leading to rising inflation because economic agents anticipate it to increase, resulting in them factoring high inflation in their future pricing decisions.

For instance, economic players expect prices to go up, businesses will want to raise prices and workers and their unions will also want wages to be raised hence creating a vicious circle.

CZI said it was worrying that some workers negotiated for a constant wage level over the period of three months as the money could not be paid on time.

Exchange rate instability, CZI said is, therefore, a threat in the Collective Bargaining Agreement processes.

Based on the official exchange rate, Zimbabwe’s minimum wage in the agriculture sector is higher than Tanzania and Zambia whereas the rest of the selected SADC countries have a higher minimum wage compared to Zimbabwe.

However, when using the parallel market rate, Zimbabwe becomes the country with the lowest minimum wage of US$34 in March 2022.

Since prices are indexed to the parallel market rate, an average Zimbabwe consumer is worse off and more vulnerable to poverty compared to counterparts in the other SADC countries.

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