Flexible Labour Laws can assist growth in Zimbabwe

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“I must study politics and war that my sons may have liberty to study mathematics and philosophy,” wrote America’s second president, John Adams who was arguably of the view that the blood and toil of older generations should result in the freedom and actualization of the younger.

 

However, Zimbabwe has seen better days. While the older generation fought a protracted war against colonialism that resulted in the country’s independence, the younger (born free) generation has not significantly experienced economic actualization, and as it stands, for various reasons, the Zimbabwean economy is struggling , and about 80% of the country’s adult population is currently unemployed.

 

While various analysts and commentators have pointed to the perceived reasons for the country’s economic quandary and the possible solutions thereof, of interest to me at this juncture is the proposition to make the country’s labour laws more flexible in order to accentuate economic growth.

 

As part of his December 2013 national budget statement, the finance minister Patrick Chinamasa stated that government would review the country’s labour laws in attempt to create a flexible labour market, which should see to an increase in productivity.

 

Put plainly, labour market flexibility makes it easier for companies to hire and fire employees and to alter work hours and wage rates. A labour market with low flexibility is characterized by rules and regulations such as minimum wage restrictions and requirements from trade unions as is the case in South Africa.

 

Now, it has emerged that cabinet recently agreed to amend the Labour Act in attempt to loosen constraints in terms of retrenchments, terminal benefits, working hours and the arbitral awards system. This has apparently incensed the Zimbabwe Congress of Trade Unions (ZCTU) which is threatening to “go back to the streets” if this position is not reconsidered.

 

However, given the prevailing economic environment, one wonders whether militancy will in anyway assist the workers. After all, whether or not the government relaxes labour laws, retrenchments are ongoing.

 

In this light, it is important for the ZCTU to consider the following factors:

 

●Firstly, labour market flexibility will allow firms to become more competitive. It should be acknowledged that Zimbabwe does not exist in a vacuum, but is part of a globalized world. As it stands, the country has become a market for international products particularly from China, India and South Africa, and this has contributed to company closures- why? Simply because our local products are too expensive and consequently uncompetitive.

 

In fact, research reveals that China has experienced massive manufacturing growth over the years because of (among other things) labour market flexibility. The fact is that frigid labour laws do not allow for large-scale employment in sectors that are labour intensive.

 

Interestingly, a Chinese labour bulletin commenting on the Indian economy recently reported that “manufacturing is necessary to give the large groups of people well paying jobs in the formal sector, as opposed to the informal sector, in which most Indians work today,” and that “Indian trade unions need to learn from China on labour law flexibility.” Zimbabwean Trade unions can learn something as well.

 

●Secondly, The ZCTU needs to understand that its threat to “go back to the streets” is laughable, given that at best, it represents 20% of the economically active population. Unions are potent in highly productive economies like South Africa. Currently in Zimbabwe, those who are working are outnumbered four to one by those who are not formally employed, meaning that threatening militancy will only put the jobs of those who are formally employed in jeopardy.

 

●Finally, while calls for a Poverty Datum Line (PDL) aligned minimum wage of $USD540/month are noble, they are also impractical. You cannot force employers to pay amounts that they cannot afford- this will only lead to more retrenchments.

 

A 2013 Reuters report on the global minimum wage pegged China’s minimum wage at an average of $USD264/month while Brazil had an average of $USD287/month. The fact is that we cannot afford to pay our labour almost double the amount that our competitors pay theirs.

 

Ultimately, while labour market flexibility is favourable, it should be accompanied by efficient service delivery and good economic governance.

 

If the workers agree to sideline their immediate demands in favour of increased productivity, global competitiveness and possible economic growth, then it becomes the state’s responsibility to ensure that the workers do not fall victim to predatory capitalism. After all the worker’s children will still need to go to school, and they will still need access to affordable housing and hospitals.

 

Tau Tawengwa

Executive Director

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Tobacco Cartel

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“An oligopoly is a market structure where the industry is dominated by a small number of sellers (oligopolists). The dominant sellers, since they are so few in number, are each likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms.

“A cartel is a special case of oligopoly when competing firms in an industry collude to create explicit, formal agreements to fix prices.”

In 2011, the collapse of the tobacco price in Malawi (the country’s main source of foreign exchange) arguably contributed to the protests in Mzuzu and Lilongwe that left 19 people dead.

Ironically, a 2005 World Bank report entitled Pathways to Greater Efficiency and Growth in the Malawi Tobacco Industry, a Poverty and Social Impact Analysis reported that “Tobacco buyers… operate as a cartel: they have a monopoly on processing,”

It further stated that “monopolies/oligopolies, rents and inefficiencies all along the value chain are passed down to producers, depressing their incomes and return on investments. Smallholders in particular are trapped in a low productivity/low income strategy.”

Now, since the opening of the Zimbabwean tobacco auction floors in February, a sizeable number of tobacco growers have expressed concern over low prices which they perceive as deliberately manipulated by buyers.

Reports of anti-riot police presence at auction floors and allegations that some tobacco growers picketed outside the Tobacco Industry and Marketing Board (TIMB) offices while singing revolutionary songs collectively depict the seriousness of the situation.

The fact is that one cannot prove whether a tobacco cartel exists in Zimbabwe based upon ostensible evidence.

However, there are factors to consider that reflect why, unlike Malawi, it would be more difficult for the Zimbabwean tobacco industry to cartel.

Firstly, there are thirteen known contract companies operating in Zimbabwe, and approximately 30% of small-scale tobacco growers are in contract farming arrangements with these companies.

This is important because contract farming allows small-scale farmers to have access to inputs, credit and advisory services and furthermore, it allows the farmers to have direct contact with increasingly difficult international markets and this forces the farmers to produce what the market wants.

Ultimately, the contract farming arrangements help the farmers to manage price risk.

As it stands reports emerging from the tobacco floors indicate that while some farmers are disgruntled by the US$0,60c/Kg price that is being offered for their tobacco, others are content, having sold their produce for up to $4,99/Kg.

The price discrepancy can arguably be attributed to the difference in produce-quality emerging from contract farmers and non-contract farmers.

Secondly, there has been a significant increase in the number of tobacco farmers in the country. Reports indicate that in 2014, about 95 000-registered tobacco growers will sell their produce.

This is an increase from 73 000 last year.

However, the problem is that there is not necessarily more money available on the market to purchase this excess produce than there was during the same period last year.

This consequently makes it a buyers market, and the likelihood is that buyers will only be willing to pay top dollar for top quality produce. More so after Brazil and Malawi open their floors.

Finally, the populist-socialist ideological orientation of the Zimbabwean socio-political structure discourages the formation of cartels in the tobacco sector. Especially because the country prides itself in the empowerment of some 100 000-tobacco farmers (of which about 40% are communal).

Consequently, it would be nothing short of folly for tobacco buyers to deliberately hoodwink unsuspecting growers by forming a cartel and manipulating prices.

Especially when one considers the ongoing liquidity crunch and the national treasury’s expectation that significant revenue will be remitted to the fiscus from tobacco sales.

Tau Tawengwa

Executive Director