Private sector could demand salary hike

The civil service salary increment may prompt workers in the private sector to demand pay hikes, according to analysts at IH Securities.

Earlier this year, the Government increased civil servants' salaries by 15 percent. And the analysts are of the opinion that employees in the private sector might want to follow suit as per practice, in addition to the fact that a number of private sector workers union have been clamouring for pay increases long before the civil service salary hike was effected.

"Traditionally the private sector has always taken a cue from the civil service when it comes to wage/salary negotiations and industrial action; we do believe that the salary demands and capitulation of the government in awarding the 15 percent increment will trigger demands within the private sector as well.

"The Progressive Agriculture and Allied Industries Workers' Union of Zimbabwe (Paawuz) has been lobbying the government to increase the minimum wage of farm workers by 100 percent from $75 to $150 per month following a salary increment of 4,2 percent or $3 per day in 2017," said IH Securities in its "Zimbabwe Consumer Sector" report.

"Furthermore, earlier this year in May, the Zimbabwe Banks and Allied Union (Zibawu) formally demanded a 60 percent salary increment from the Bank Employers Association of Zimbabwe (BEAZ) for banking sector employees, the employers have at this point countered with an offer of around 3,4 percent.

"In the tourism sector, employees have been awarded a 5 percent salary increment announced by their National Employment Council in May this year.

"Whilst these developments are positive for consumer spend and general demand, they do imply some inflationary pressure as well as forward pressure on margins as corporates absorb potentially higher costs on labour."

A possible increase in wages in the private sector will boost consumer spending, which has already been on an upturn from last year, an improvement from 2016. Official figures show that Zimbabwe's consumption declined from 80,59 percent of total gross domestic product in 2016 to around 76,42 percent last year attributable to declining disposable incomes and rising unemployment rates.

IH Securities' analysis of consumer sector earnings in FY17 point to growth in consumer spending during the period under review.

"We saw counters in the consumer sector including Axia and OK Zimbabwe, posting record-high growth in earnings in FY17-18 year-ends which could be attributed to a significant migration of informal business to the formal sector, as the financial sector has become highly financially inclusive in the advent of cash shortages.

"Statutory Instrument 64 (SI64) of 2016 which was gazetted to impede the importation of basic consumer goods such as vegetables, cooking oil and staple foods from neighbouring South Africa in favour of local manufacturing and businesses also contributed to the growth in earnings the sector recorded.

"Delta lager beer volumes recorded the highest growth over the period as they rose 27 percent as a result of consumers moving up the product chain, implying improved disposable incomes. The mix shifted towards premium beer as the contribution rose to 28 percent from 26 percent in FY17 while mainstream and economy beers dropped to 58 percent (from 59 percent) and 14 percent (from 15 percent) respectively.

"OK Zimbabwe's strong performance, attributed to a substantial migration of transactions from the highly cash-dependent informal sector to the formal sector, bears testament to the significant shift towards 'plastic money' as point-of-sale (POS) transactions constituted 82 percent of payments during FY18.

"Retailers indicated that their product mixes were being skewed towards lower profit margin products, indicating the highly liquid bottom-of-the-pyramid earners, which are highly dependent on the primary sectors," said the analysts.