eBusiness Weekly
Martin Kadzere
The ongoing depreciation of the Zimbabwe dollar against the US dollar is squeezing the already strained wallets of many formally employed workers in the country.
Despite being employed, a significant portion of their salaries are still denominated in the local currency, which continues to lose value at an alarming rate.
While the Zimbabwe dollar depreciates more slowly on the formal market, the erosion is far greater on the parallel market, now trading at around $20 000 against the US dollar.
The black-market rate is widely used by local businesses for price benchmarking, further fuelling price increases.
Employers are adopting a two-tiered approach to Zimbabwe dollar salaries.
One method indexes salaries to the official exchange rate, offering some relief to employees, especially when the official and parallel market rates near converge.
This mitigates the decline in their effective purchasing power as salaries partially adjust to inflation.
However, this approach has limitations.
While it provides a buffer for some, it fails to address the plight of other employees on fixed Zimbabwe dollar salaries such as civil servants.
These workers bear the full force of currency depreciation as their wages remain stagnant while prices rise, leading to a significant erosion of purchasing power and impacting their livelihoods most severely.
“After medical aid and funeral policy premiums and taxes are deducted, there is essentially nothing left of my Zimbabwe dollar salary,” said a worker with a local supermarket chain.
“The providers of these services have been raising premiums but salaries have remained static.”
Marvellous Tendai, a teacher in Harare said: “With the price of everything going up almost daily, it feels like I am earning less and less every month.”
Her experience reflects the wider issue facing Zimbabwean workers. The continued decline of the local currency makes it increasingly difficult to afford basic necessities like food, housing, and healthcare.
On Monday, state health workers declared incapacitation due to “volatile economic environment which is characterised by the loss of value of the Zimbabwe dollar prices, price disparities and distortions and hyperinflation”.
Many workers are now forced to resort to drastic measures such as cutting back on essential expenses or seeking additional sources of income to make ends meet.
Moreover, the situation is further compounded by the fact that many essential goods and services are priced in US dollars, effectively pushing them out of reach for those earning in Zimbabwe dollars.
As a result, this widens the gap between those who have access to hard currency and those who do not, creating a two-tiered system where those with US dollars have a significant advantage in terms of purchasing power.
Declining aggregate demand
As the Zimbabwean depreciates, the salaries of formally employed workers buy less in terms of goods and services, effectively reduces their disposable income, which is the money they have to spend.
People tend to cut back on their spending and if businesses experience such a decline in sales due to lower demand, they will be forced to lay off employees as part of cost cutting measures, leading to increased unemployment, further reducing overall disposable income in the economy and creating a poverty trap.
Confederation of Zimbabwe Industries (CZI) president, Kurai Macheza, said inflation, impacting both the Zimbabwe dollar and the US dollar, was eroding spending power and could ultimately dampen overall consumer demand. He said the CZI, along with other stakeholders, was actively engaged in finding solutions to the issue of currency depreciation.
“If you study the developments in our economy you will see inflation on both currencies, the Zimbabwe dollar and the US dollar,” said Macheza.
“The fact that our Zimbabwe dollar is losing value fast against the US dollar is a phenomenon we have lived with for a long time and do not seem able to reign in on this.
“As economic players together with authorities we have to find the causes of our currency depreciation and address them.
“Certainly the productive base (agriculture, mining, manufacturing) of our economy has to be strengthened and be able to build reserves to be able to defend our currency. The industrialisation agenda and export drive must be focused on (and) money supply has to be tightly controlled and expenditure too.
Gold up in the air
In a bid to curb chronic inflation and stabilise its currency, Zimbabwe is considering backing its currency with gold and engagements with some regional financial institutions are already underway to mobilise resources to build up bullion stocks.
Some analysts say gold, a long-held symbol of stability and value, may offer a solution. By linking the local currency to gold reserves, they hope stability would be achieved.
But some have raised serious doubts about the country’s capacity to accumulate sufficient gold reserves to effectively support its domestic currency.
Highlighting the desire for a stable currency, Finance, Economic Development and Investment Promotion Minister Prof Mthuli Ncube said achieving a stable currency could be achieved by linking the exchange rate to asset like gold.
“Really this is a quest for currency stability,” Prof Ncube said. “What has emerged over the years is the US (dollar) being the most dominant. Going forward, we want to make sure that the growth we have achieved so far — which is very strong is maintained.
“We can only do that if we have further stability in the domestic currency and the way to do that is perhaps to link the exchange rate to some hard asset such as gold.”
Fragile Economy
Economists warn that the ongoing currency depreciation could further destabilise the already fragile economy.
“This has a ripple effect throughout the entire economy,” said Carlos Tadya, a Harare based economic analyst.
As the situation continues to unfold, the question remains: how long can Zimbabwean workers weather the storm before the declining value of their salaries renders them unable to meet their basic needs?
“The decline of the Zimbabwe dollar is deeply concerning for our members, many of whom are struggling to make ends meet despite being formally employed.
“The erosion of purchasing power is creating immense hardship and threatens livelihoods across the nation. We urge the Government to take immediate and decisive action to address this issue and stabilise the currency,” the Zimbabwe Congress of Trade Union said.
