Zimbabwe economy continues to shrink

ZIMBABWE's economy has continued to shrink, leading to growing unemployment and significant underemployment, an international research body has said.

A recent Business Monitor International (BMI) report said a weak labour market would continue to constrain consumption growth over 2017.

"A thorough analysis of Zimbabwe's labour market is complicated by the country's significant informal labour sector," the report read.

"Since the climax of the political and economic crisis in 2008, Zimbabwe's economy has continued to shrink, leading to growing unemployment and significant underemployment.
"According to our operational risk team, a majority of economically active Zimbabweans are employed in the informal sector.

"With a large proportion of Zimbabweans either in informal or vulnerable employment, we expect growth to remain tepid."

BMI said they believed that income insecurity, together with low income levels, would gear consumption toward subsistence-based spending — preventing significant consumption growth.

Employers' Confederation of Zimbabwe, at the start of the year, forecast that employers' would not be hiring as much as they did in the past due to the depressed economy.

Already, trends point to most companies undertaking cost cutting and restructuring exercises for the year.

Economists say a decline in disposable income would lead to less spending and businesses would receive fewer returns, resulting in them shedding off staff and reducing recruitments to cut costs.

The government says there are about 500 000 people employed in the formal sector, in a country with an estimated population of close to 14 million.

The informal sector is estimated to employ 90% of the country's able-bodied workforce.

Meanwhile, in the informal sector, there has been an uptick of those being employed as average salaries are higher, an average of between $500 and $600 a month.

In the formal sector, salaries range from $300 to $450 a month, BMI said.

BMI said Zimbabwe was unable to compete with its regional peers in terms of employment costs, and that labour market risks were exacerbated by rigid labour regulations, chronic market liquidity constraints and regionally uncompetitive US-dollar denominated wages.

"Furthermore, businesses will face difficulty adjusting the size of their workforce in response to economic changes due to costly severance pay packages and time-consuming employee termination procedures," the report said. "The latter has been a key feature of many company closures and we expect this trend to persist over the short-to-medium term."

BMI said due to the continued emigration of skilled people in search of better economic opportunities abroad, businesses in the country would face difficulty in sourcing appropriately skilled workers over the medium term.