Bread and butter issues in the midst of Zimbabwean economic hardships…. how are breadwinners coping with the tough times? (Part 1)
By Paddington Masamha
Without labouring with the knowledge sophistication within the finance and economics sphere, a general conversation with a primary school student would help anybody understand that in order to sustain a basic livelihood there are three elementary human needs. Zimbabwean primary level education introduces its students to food, shelter and clothing as the three basic human needs.
This upfront knowledge is presented in form of family stories and case studies. The underlying concept within the stories is essentially to demonstrate that food, shelter and clothing are the necessary ingredients for any living to be sustainable. Outstandingly, it is this basic understanding that forms the pivot of household economics.
Nonetheless; in Zimbabwe getting access to basic food (e.g. bread, butter, cooking oil, fuel, etc.), shelter (decent and affordable accommodation) and clothing is becoming financially strenuous. In instances where the goods and services are available, a significant number of breadwinners cannot afford to purchase these necessities.
Although the current economic adversities are not a new phenomenon for the average Zimbabwean household; the recent scarcity of basic goods and services has triggered a variety of survival tactics for most breadwinners.
Rural survival tactics-the Chimodho case-study
Whilst in this ordinary thinking mode; l am quickly reminded of how our family used to prepare for breakfast. My father as a rural teacher could afford to buy flour for us to bake the traditional bread popularly known as chimodho/chimupotokwindi. On special days; my mother would spoil us with fat cooks (affectionately known as mafete).
Remarkably within the rural set-up, such a lifestyle was considered to be affluence. Whenever it was pay day or some special holidays, our parents would surprise us with ‘real’ (chingwa chemusitoro) loaves of bread from the nearest growth point.
As the economy worsened, the family slowly started changing the mixing percentages of flour and mealie meal. Initially, the flour content within this ‘chimodho’ bread would be 75% but as the economic conditions worsened; we switched to as low as 10% flour mix with the remaining 90% being mealie meal. At the very pick period of Zimbabwean economic downfall; a new recipe of amaqebelengwana (a recipe borrowed from Matebeleland region) took centre stage of our rural breakfasts.
Switching from chimodho to amaqebelengwana was indeed a signal that the living standards were declining. This new type of home-made bread was strictly 100% mealie meal whose only ingredients was sugar and salt. Having the funds for a decent breakfast was indeed becoming a mammoth task for my rural parents.
Being confronted with such constraints, environmental threats and diminishing purchasing power of their rural incomes; the financial experiences lead my parents to acquire pieces of land for the family to practice subsistence farming. Driven by the ordinary parental duty of putting food on the family table, my parents inculcated a variety of traditional food substitutes.
Within the school compound, we established a thriving garden. Outside the school premises, our small pieces of land were producing positive yields. So instead of resorting to the flour based bread mixtures (chimodho and or amaqebelengwana); the family could now afford the more enriching sweet potatoes (mbambaira/mabura), groundnuts (nzungu), roundnuts (nyimo), pumpkins (manhanga), cowpeas (nyemba) among others.
I have just demonstrated a mini-case study of how my family adopted survival tactics during the time period when the economy was so unpalatable and posing a variety of challenges. Essentially, from observation of these rural case studies; a significant number of family breadwinners changed their eating habits and lifestyles. In some families the meals reduced from the standard three (3) to just one (1) meal a day.
Noticeably, most rural teachers instead of relying on monthly salaries; they started venturing into rural farming projects and subsistence activities so as to sustain their families. Such was my life experience with the Zimbabwean rural economic environment.
The urban household challenges: depreciating incomes vs inflation
Zimbabwe is going through a thorny economic phase where public officials (particularly the Minister of Finance and Economic Development) are reporting positive statistics whilst the situation at household level is largely unpleasant. Discoursing the divergence between the reported positive national income account positions and the unpalatable household budgets (higher cost of living) is reserved for another publication. Momentarily, focus is placed on how households are coping with the perilous economic times.
The previous publication titled May Day commemorations: Is there anything for the Zimbabwean worker to celebrate? heralded the underlying economic challenges faced with the majority of workers. By and large, the depreciation of household incomes (particularly wages and salaries, various subsistence incomes e.g. rental income, profits from most informal trades, incomes from a variety of agricultural projects, etc.) has essentially curtailed down the consumption and spending patterns of the average families.
The reduction in household incomes’ purchasing power has been aggravated by the poor bargaining power of labour resources, currency changes (the migration from the 1:1 parity to the liberalized exchange rate system), the inability to access foreign currency on formal markets and using parallel markets as the last resort (where exorbitant premiums are charged, greater exposures to frauds, currency counterfeits and slipshod deals are inevitable). Whilst incomes have been constantly eroded (loosing value), prices have been running amok.
It is common knowledge that household incomes are struggling to keep pace with the accelerating prices of most basic goods and services. Both government and private sector employees are principally involved in collective bargaining agreements (CBAs) which attempt to track the inflationary spiral but in the midst of austerity such efforts have had limited progress. Even though RTGS dollar ‘value preservation’ remains a prime objective of both monetary and fiscal authorities, household income ‘value destruction’ is more pronounced.
Whilst austerity is largely a government policy initiative; corporates are bound to downsize, restructure and streamline their operations in order to circumvent the negative business risks inherent within the austerity phase. As businesses are confronted with reduced demand for some of their merchandise, cutting the expenditure side has become more ideal. Though the preservation of the limited revenue resources remains a prime concern within an inflationary environment, building cost conscious operations has become the epitome of most corporate strategies.
The currency instabilities have even worsened scenarios where short termism is the new industrial order. Long term projects are slowly being shelved and priority is placed on financing present-day working capital requirements. Under such circumstances, it is highly unlikely for labour services to be rewarded handsomely since the survival mode is the dominating entrepreneurial motive.
Within this subject, one should not forget the excruciating effect of the 2% IMT transaction tax system. Since its inception, the new tax system has been inflationary. This has been extensively elaborated in a number of publications of this writer. Basically however; for reminiscence’s sake, the tax incidence of tax is the anchoring locus of this economic supposition.
An attempt to interweave these market developments leaves one with a basic conclusion that household incomes are deteriorating whilst being confronted with price escalations. Having such constrained budgetary positions, breadwinners have largely been struggling to make ends meet.
Are the retail prices of basic goods and services justifiable?
By and large, an acrimonious relationship exists between government and businesses operating in Zimbabwe. The major bone of contention is that government views the pricing structures of most business to be based on wanton profiteering (hence the regime change agent, economic saboteurs or the recently coined financial terrorists descriptors) as opposed to adopting fairer pricing strategies.
On the other hand, businesses visualize the heavy hand of government within the market (through ill-advised economic policies, excessive controls and regulations, etc.) as the primarily driver of market distortions and price anomalies.
From observation, businesses are using an assortment of pricing models but what has for some time proven mostly dominant is the benchmarking of RTGS dollar prices with the USD prices. For instance, assuming company A was charging $1,00 for a single unit of its product during the pure dollarization era, the same product’s RTGS price is indexed to either the interbank rate price of $6,00 RTGS dollar (basing on the USD/ZWL 1:6 current official exchange rate) or priced at $8,50 RTGS dollar (basing on the USD/ZWL 1:8.50 current parallel market rate).
The practice of benchmarking RTGS prices to their USD dollar equivalence is widely noticeable even with government parastatals for example ZINARA and ZIMRA. For instance, certain border clearance fees, fines or taxes are daily indexed to the prevailing interbank rates. Just to corroborate the argument, the RTGS price of a gate pass was increased from $9.00 to $34.00 RTGS dollar.
Noticeably, these state institutions did not change their USD dollar pricing system but basically adjusted their monthly, weekly or daily charges through establishing a price-multiplier. The price multiplier is a derivative of the interbank exchange rate movements between the USD dollar and the RTGS dollar (USD$/ZWL$).
Private players having noticed such parastatal pricing models are also engaging in various pricing schemes that ensure that they remain afloat. Consequently, depending on the capacity of the organization to have direct access to government’s foreign currency allocation scheme or the unofficial foreign exchange market; price anomalies are therefore incubated from such market developments.
Assuming this viewpoint could partly explain the pricing decisions of Zimbabwean businesses, it is only fairer to argue that instead of government parading the scapegoat of demonizing businesses as enemies of the state or economic saboteurs; the best approach is to solve the currency crisis and eliminate the undesirable parallel market developments.
Let our economic chauffeurs be reminded that as economic recovery debates are ongoing, the scenario still remains unfavorable at household level. The meagre household incomes stumble upon prices of bread averaging $3.00-$4.00 RTGS dollars, a 2kg of sugar averaging $10.00 RTGS dollars, 2litres of cooking oil costing $20.00 RTGS dollars, 2kg rice priced at $13.00-$15.00 RTGS dollars, 10kg mealie meal within the ranges $18.00-$20.00 RTGS dollars, etc. These exorbitant costs are further exacerbated with the excruciating bills of transport and accommodation.
If one views these prices from their USD equivalence, the pricing policies can be deemed fairer. However, what has been a huge constraint is the stagnant or miniature incomes of households. For instance, an employee with a monthly salary of $800 RTGS dollar is in effect pocketing $133.33 USD (using USD:ZWL official rate of 1:6) or $94.12 USD (using the parallel market rates of 1:8.5).
The statistics above are seemingly sounding impractical, but such is the economic reality of the average worker. The obvious question which boggles the mind is, how are breadwinners blending with such agonizing times?
Casing the argument, the breadwinner’s dilemma is the constant confrontation with USD benchmarked prices vis-a-viz deteriorating RTGS dollar based incomes. The present-day austerity measures demand that the masses ‘austere,’ but the austerity measures are disproportionately targeting the poor masses.
Linking it all
This publication undertook to establish the scenarios faced by both the rural and urban households. Having in mind the rural family case study, the urban household challenges and the general business operating environment; the opinion piece forms the background of the bread and butter concerns of Zimbabwean households.
As a parting shot, allow me to borrow from the wisdom of Professor Joseph Stiglitz by asking this question: should the nation keep on consuming the medication (austerity measures) which is seeking to cure the disease (economic collapse) by killing the patient (households and firms)?
Paddington Masamha is an independent Financial and Economic Analyst. He can be reached on email [email protected] and Twitter @PMasamha