News / National
'Dollarisation failed to create jobs in Zimbabwe'
12 Jul 2019 at 18:57hrs | Views
While Zimbabwe registered remarkable economic growth during the multi-currency era, the period dismally failed to generate significant formal jobs, research findings 5released by the Reserve Bank of Zimbabwe (RBZ) reveal.
This assertion was supported by Finance and Economic Development Minister Mthuli Ncube who said recently the multi-currency stifled growth in Zimbabwe as it made the country's exports uncompetitive due to the use of a strong currency.
"The multi-currency system stifled growth as the country could not utilise monetary instruments to influence economic activity and gradually lost competitiveness compared to major trading partners," he said when explaining re-introduction of the Zimbabwean dollar.
Government has since abolished the multi-currency regime effective June 24, 2019, through statutory instrument (SI) 142 of 2019, also known as the Reserve Bank of Zimbabwe (Legal Tender) Regulations.
The regulations also banned the use of the British pound, Botswana pula, South African rand and Chinese yuan, among others, as legal tender in Zimbabwe and reintroduced the Zimbabwean dollar.
Under dollarisation, Zimbabwe had the strongest currency on the continent even when compared to much larger economies on the continent such as South Africa, Nigeria, Egypt, Kenya and Angola. The ban came as the market threatened self-redollarisation at a time the Government did not have sufficient US dollars required to sustain the monetary obligations of a dollarised environment.
The Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ) study also concluded that there exists a weak link between growth and employment in Zimbabwe, brought about by the inherited dual and enclave structure of the economy.
LEDRIZ further noted that after structural changes that occurred following de-industrialisation and informalisation of Zimbabwe's economy, the vast majority is now locked in low productivity and low income non-formal sectors.
The change in the economic structure affected the country's ability to generate jobs. The manufacturing sector is normally associated with a higher employment elasticity of growth compared to other sectors, the central bank found from its research.
Against this background, findings of the RBZ research recommended that the Government needed to invest significantly in the construction and manufacturing sectors in order to create more and sustainable employment in the country.
According to the research, while there normally is positive co-relation between economic growth, job creation and poverty reduction, this was not the case in Zimbabwe during the multi-currency period when formal employment levels remained depressed.
"Although Zimbabwe experienced reasonably satisfactory growth rates during the multi-currency system, employment has not increased as much," the RBZ' s latest research findings say.
The majority of the Zimbabwe people, the study says, are employed in low paying jobs that include own employment, agriculture, resettlements and peri-urban farming among others that also do not carry any form of pension benefits post retirement.
As such, the central bank said that in the case of economic growth without corresponding formal employment creation, the Government may need to investigate and address the reasons behind what then becomes known in economics as "jobless" growth.
Formal employment remains depressed in Zimbabwe, raising serious concerns about the possibility of "jobless growth" in the country. The broad unemployment figure for Zimbabwe was 11 percent in 2014, according to Zimstat, 2015.
This was, however, despite the fact that the country registered average economic growth of 10 percent during the multi-currency period stretching from February 2009 and July 31, 2013. While the unemployment figures appear low, the majority are self-employed.
Empirical evidence shows an elasticity of 0,44 between gross domestic product and formal employment. Precisely, the central bank's study suggests that in the long run a 1 percent change in GDP results in a 0,44 percent change in formal employment in Zimbabwe.
This shows that formal employment in Zimbabwe is moderately responsive to GDP growth and falls within the normal ranges of 0,3 to 0,6 found in most developing countries in Africa.
"The results suggest that there is a long-run relationship between (gross domestic product) and formal employment on an aggregate level. This implies that an increase in economic growth results in increased formal employment.
To complement effect of GDP growth on formal employment growth, the RBZ analysed the employment sectoral effect of growth. This was done by examining impact of specific sector GDP growth on the respective sector's formal employment growth.
"(Study shows that) construction and manufacturing sub-sectors have high long term employment elasticities. The results suggest that a 1 percent increase in construction GDP lead to a 0,72 percent rise in construction formal employment, while a 1 percent increase in manufacturing GDP 25 give rise to a 0,66 percent in formal manufacturing employment," RBZ said in the report of its research findings.
"The policy implications of sectoral results are that Government can quickly increase formal employment by investing in construction and manufacturing industries," the study noted.
The mining and distribution employment elasticities are estimated lower at 0,45 and 0,31, respectively.
Basing on long term employment elasticities, construction and manufacturing are found to be more labour intensive and employment supportive, compared to the other sectors of the economy.
Contextually, the study results imply that the decrease in formal unemployment in Zimbabwe is mainly a result of low economic growth rates over the years rather than low employment intensities of growth.
Precisely, it implies that economic policies aimed to grow the economy will most likely lead to a boost in formal employment in the country.
On the short run basis, the results also show that increase in economic growth leads to increases in formal employment. The relationship however breaks down during economic down turns and even turn into negative.
The 2014 Labour Force Survey shows that 74 percent of the employed persons are under own account, of which own account worker communal, resettlement and peri-urban farmer accounted for 58,9 percent and own account other 14,1 percent. The paid employee on a permanent basis accounted for only 15,5 percent or 970 146 employees in 2014.
This assertion was supported by Finance and Economic Development Minister Mthuli Ncube who said recently the multi-currency stifled growth in Zimbabwe as it made the country's exports uncompetitive due to the use of a strong currency.
"The multi-currency system stifled growth as the country could not utilise monetary instruments to influence economic activity and gradually lost competitiveness compared to major trading partners," he said when explaining re-introduction of the Zimbabwean dollar.
Government has since abolished the multi-currency regime effective June 24, 2019, through statutory instrument (SI) 142 of 2019, also known as the Reserve Bank of Zimbabwe (Legal Tender) Regulations.
The regulations also banned the use of the British pound, Botswana pula, South African rand and Chinese yuan, among others, as legal tender in Zimbabwe and reintroduced the Zimbabwean dollar.
Under dollarisation, Zimbabwe had the strongest currency on the continent even when compared to much larger economies on the continent such as South Africa, Nigeria, Egypt, Kenya and Angola. The ban came as the market threatened self-redollarisation at a time the Government did not have sufficient US dollars required to sustain the monetary obligations of a dollarised environment.
The Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ) study also concluded that there exists a weak link between growth and employment in Zimbabwe, brought about by the inherited dual and enclave structure of the economy.
LEDRIZ further noted that after structural changes that occurred following de-industrialisation and informalisation of Zimbabwe's economy, the vast majority is now locked in low productivity and low income non-formal sectors.
The change in the economic structure affected the country's ability to generate jobs. The manufacturing sector is normally associated with a higher employment elasticity of growth compared to other sectors, the central bank found from its research.
Against this background, findings of the RBZ research recommended that the Government needed to invest significantly in the construction and manufacturing sectors in order to create more and sustainable employment in the country.
According to the research, while there normally is positive co-relation between economic growth, job creation and poverty reduction, this was not the case in Zimbabwe during the multi-currency period when formal employment levels remained depressed.
"Although Zimbabwe experienced reasonably satisfactory growth rates during the multi-currency system, employment has not increased as much," the RBZ' s latest research findings say.
The majority of the Zimbabwe people, the study says, are employed in low paying jobs that include own employment, agriculture, resettlements and peri-urban farming among others that also do not carry any form of pension benefits post retirement.
As such, the central bank said that in the case of economic growth without corresponding formal employment creation, the Government may need to investigate and address the reasons behind what then becomes known in economics as "jobless" growth.
Formal employment remains depressed in Zimbabwe, raising serious concerns about the possibility of "jobless growth" in the country. The broad unemployment figure for Zimbabwe was 11 percent in 2014, according to Zimstat, 2015.
This was, however, despite the fact that the country registered average economic growth of 10 percent during the multi-currency period stretching from February 2009 and July 31, 2013. While the unemployment figures appear low, the majority are self-employed.
Empirical evidence shows an elasticity of 0,44 between gross domestic product and formal employment. Precisely, the central bank's study suggests that in the long run a 1 percent change in GDP results in a 0,44 percent change in formal employment in Zimbabwe.
This shows that formal employment in Zimbabwe is moderately responsive to GDP growth and falls within the normal ranges of 0,3 to 0,6 found in most developing countries in Africa.
"The results suggest that there is a long-run relationship between (gross domestic product) and formal employment on an aggregate level. This implies that an increase in economic growth results in increased formal employment.
To complement effect of GDP growth on formal employment growth, the RBZ analysed the employment sectoral effect of growth. This was done by examining impact of specific sector GDP growth on the respective sector's formal employment growth.
"(Study shows that) construction and manufacturing sub-sectors have high long term employment elasticities. The results suggest that a 1 percent increase in construction GDP lead to a 0,72 percent rise in construction formal employment, while a 1 percent increase in manufacturing GDP 25 give rise to a 0,66 percent in formal manufacturing employment," RBZ said in the report of its research findings.
"The policy implications of sectoral results are that Government can quickly increase formal employment by investing in construction and manufacturing industries," the study noted.
The mining and distribution employment elasticities are estimated lower at 0,45 and 0,31, respectively.
Basing on long term employment elasticities, construction and manufacturing are found to be more labour intensive and employment supportive, compared to the other sectors of the economy.
Contextually, the study results imply that the decrease in formal unemployment in Zimbabwe is mainly a result of low economic growth rates over the years rather than low employment intensities of growth.
Precisely, it implies that economic policies aimed to grow the economy will most likely lead to a boost in formal employment in the country.
On the short run basis, the results also show that increase in economic growth leads to increases in formal employment. The relationship however breaks down during economic down turns and even turn into negative.
The 2014 Labour Force Survey shows that 74 percent of the employed persons are under own account, of which own account worker communal, resettlement and peri-urban farmer accounted for 58,9 percent and own account other 14,1 percent. The paid employee on a permanent basis accounted for only 15,5 percent or 970 146 employees in 2014.
Source - businessweekly
