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OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0531/01 1821212
ZNR UUUUU ZZH
O 011212Z JUL 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4665
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 2920
RUEHDS/AMEMBASSY ADDIS ABABA 3039
RUEHRL/AMEMBASSY BERLIN 1471
RUEHBY/AMEMBASSY CANBERRA 2302
RUEHDK/AMEMBASSY DAKAR 2669
RUEHKM/AMEMBASSY KAMPALA 3087
RUEHNR/AMEMBASSY NAIROBI 5530
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2217
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000531 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B. WALCH 
DRL FOR N. WILETT 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
STATE PASS TO USAID FOR J. HARMON AND L. DOBBINS 
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN 
 
E.O. 12958: N/A 
TAGS: EMIN ETRD PGOV PREL ZI ECON EAGR
SUBJECT: DEMAND FOR HIGHER WAGES A BURDEN ON ECONOMIC 
RECOVERY 
 
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SUMMARY 
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¶1.  (SBU) A survey of Zimbabwean-based businesses in mid-June 
revealed that foreign currency-denominated wage demands are 
becoming a critical challenge to an economic recovery given 
continued low productivity levels.  A hyperinflationary 
mindset remains amongst workers, despite stabilizing prices, 
leading to regular calls from labor to raise wages.  Unless 
the wage issue is successfully addressed by linking salary 
increases to productivity improvements, businesses will be 
unable to produce competitively for either domestic or 
international markets.  END SUMMARY. 
 
--------------------------------------------- ----- 
It was easier to pay workers during hyperinflation 
--------------------------------------------- ----- 
 
¶2.  (SBU) In mid-June, econoff and econ specialist met with a 
series of Zimbabwean business leaders to gain an 
understanding of the pressures wage demands are placing on 
Zimbabwean industries in the current dollarized, 
post-hyperinflationary environment.  We spoke with 
representatives of the agricultural, manufacturing, apparel, 
construction, and mining sectors who collectively were 
struggling to avoid layoffs and meet employee payroll 
demands. 
 
¶3.  (SBU) Most companies interviewed stated that they were 
able to carry a larger workforce during hyperinflation 
because it cost them little in U.S. dollar terms to pay 
Zimbabwean dollar-denominated wages and allowances.  The 
crashing value of the local currency allowed businesses to 
convert a few U.S. dollrs into Zimbabwe dollars at the end 
of each month to pay wages and buy food hampers for workers 
or pay them in the company's product.  The chairman of the 
agricultural firm Interfresh, Lishon Chipango, explained that 
until dollarization occurred, the company paid only about 20 
percent of wages in cash and supplemented wages with produce. 
  Sino-Zimbabwe Cement Company's General Manager for 
Administration, Mr. M. D. Moyo, told us that by January 2009 
the company was paying all of its workers in bags of cement, 
which the workers then sold for foreign currency.  According 
to him, this created a conflict of interest as salespeople 
were selling both company products and their own.  Between 
September 2008 and the adoption of dollarization in January 
2009, the company supplemented salaries with food hampers 
that cost little in U.S. dollar terms. 
 
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Wage demands not linked to productivity 
--------------------------------------- 
 
¶4.  (SBU) Following dollarization, companies are struggling 
to find sufficient foreign currency from sales to pay wages 
because of a general shortage of foreign-denominated cash in 
Zimbabwe.  According to the President of the Matabeleland 
Chamber of Industries, Dumisani Sibanda, the average wage in 
the manufacturing sector is US$100 per month.  Most companies 
interviewed stated that even these salaries are excessively 
Qinterviewed stated that even these salaries are excessively 
high given productivity levels.  Not all firms we spoke with 
complained about salary demands.  For instance, the Managing 
Director of apparel exporter Styles International Private 
Limited, Chitranjin Laxmidas, told us that his company's 
salaries ranged from US$100 to US$300 per month. 
 
--------------------------------------------- - 
Businesses pleased with skills of workforce... 
 
HARARE 00000531  002 OF 003 
 
 
--------------------------------------------- - 
 
¶5.  (SBU) All of the businesses with whom we spoke expressed 
satisfaction with the skills of Zimbabwean workers.  The 
apparel sector in particular was eager to grow its workforce 
under the right conditions.  Laxmidas and David Lasker, the 
Chief Executive Officer of Archer Clothing Private Limited, 
praised the high level of skills and strong work ethic that 
remain in Zimbabwe despite the exodus of skilled workers over 
the past decade.  Laxmidas showed econ specialist 
applications for a junior bookkeeping position with the 
company that demonstrated high levels of education and 
experience.  Such companies have also worked to maintain 
industry skills.  For example, Laxmidas trains about 15 to 20 
staff every three months and draws new staff from local 
technical colleges.  The company aims to increase its staff 
from around 60 people to about 250 over the next six to 
twelve months as it ramps up exports. 
 
------------------------------------------ 
...Though some still forced to downsize... 
------------------------------------------ 
 
¶6.  (SBU) Banking specialists noted that new layoffs were 
occurring because companies inefficiently carried excess 
staff during hyperinflation.  This is no longer possible in 
today's dollarized economy.  Some businesses were also 
skeptical of how quickly the economic turnaround would occur, 
making them reluctant to sink unnecessary levels of hard 
currency into increased payroll.  Others continued to carry a 
larger workforce to compensate for the frequent sudden loss 
of workers as they chose to leave the country or could no 
longer afford transportation to work; these issues are 
abating. 
 
¶7.  (SBU) Archer Clothing Private Limited, for example, 
down-scaled its workforce from 1,500 in November 2008 to 
1,000 because of restructuring which resulted in the adoption 
of leaner production techniques that shortened the assembly 
line.  Archer pays workers an average of US$93 per month but 
dropped all other incentive schemes, such as performance and 
attendance bonuses.  However, Lasker told us that the company 
expects workers to meet minimum productivity standards in 
exchange for a steady foreign currency wage.  Zimplow Ltd. 
CEO, Tiny Rowland, said the company has scaled down its 
workforce from 550 to 400 but should optimally be at about 
375 employees. 
 
--------------------------------------------- --------- 
...In the face of growing pressure for untenable wages 
--------------------------------------------- --------- 
 
¶8.  (SBU) The Matabeleland Chamber's Sibanda said that 
workers were demanding wages that were unaffordable to 
business.  The manufacturing sector is trying to accommodate 
workers' demands by paying higher salaries, but they offset 
this by putting workers on half time.  Sibanda told us that 
businesses are also under pressure to contribute to the 
National Social Security Authority's pension scheme, which 
QNational Social Security Authority's pension scheme, which 
was raised from 3 percent of the wage bill to 4 percent prior 
to dollarization.  Treger Holdings Financial Director, 
Charmaine Kerr, identified labor as the company's primary 
pressure source.  She said Treger struggles to pay its 5,000 
workers.  Kerr complained that even though the company 
already had a payroll of one million dollars per month, labor 
was demanding more.  According to her, Treger cannot afford 
increases in the current environment and is therefore going 
to lay off 400 employees in July 2009. 
 
 
HARARE 00000531  003 OF 003 
 
 
¶9.  (SBU) Econ specialist's meeting with Bata Shoes was 
cancelled due to a worker strike and we learned from 
Sino-Zimbabwe that Bata workers had successfully lobbied for 
higher wages several weeks earlier (workers had been paid 
US$45 per month), but were now pushing for more.  Mining 
executives also complained that the labor unions were asking 
for "crazy" wages of about US$450 per month, which mining 
executives say won't happen because it is unsustainable under 
the current economy.  They added that most mines already 
provided services o workers such as housing, schooling, and 
medical care which, along with wages, amounted to about 
US$400 per month. 
 
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COMMENT 
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¶10.  (SBU) In an environment of high input costs, limited 
capital, rising utility prices, and low productivity, 
Zimbabwean businesses are being further pressured by 
increasing wage demands from labor.  Unless labor costs rise 
in concert with future growth in productivity and 
consequently profitability, economic recovery will be slowed 
and formal employment will continue to stagnate or even 
decline.  END COMMENT. 
 
MCGEE