Civil service salary: Spinoffs to the broader economy

Last Thursday saw the Minister of Finance, Tendai Biti, presenting what can arguably be labelled a robust Fiscal Policy Statement highlighted by projections of strong economic growth over the coming years.

The current year, 2010, is expected to register a real GDP growth of 8,1% while growth for 2011 economic growth is projected at 9,3%. Underpinning that growth are primary industries, namely, mineral extraction and farming. Mining is anticipated to expand by 47% and 44% in 2010 and 2011, respectively riding on firming international commodity prices as well as increasing output in gold and platinum production.
Several investors are lining up to explore and develop mining projects in Zimbabwe as the country is believed to be endowed with abundant mineral resources.
The fact that investment is trickling into the sector amidst the confusion surrounding indigenous empowerment regulations and a pending amendment to the Mines and Minerals Act could be an indication that the local mining projects have a potential for significant returns Imagine if the political risk in the country was not as high as is widely perceived amongst international investors.
Certainly, the early stage of the economic turnaround could have seen a sector like mining growing two-fold yearly given the general firming in prices of precious minerals and base metals thanks to rising demand from China.  Strong growth is also expected from agriculture despite spending more than a decade in limbo.
Agriculture is expected to grow by 33.9% in the current year and 19.3% in 2011 benefiting from growth in tobacco and sugar production. 
The statement was also favourable to civil servants with the minister setting aside US$1,4 billion for wages, medical aid, pensions and social security contributions. This is an increase of US$400 million from the 2010 outturn of US$1 billion. Out of the proposed US$1,4 billion, an amount of US$1,1 billion will be used for remuneration of public servants. This is almost double the US$600 million set aside in last year’s budget.
It would, however, appear that this upward revision of the wages could prove inopportune as it is unsustainable. Revenue collections, though steadily improving, are still constrained and given that less than half of money pledged by donors has come, the rise could have been introduced more gradually.
There was need to increase capital expenditure allocations to rehabilitate critical infrastructure deficiencies in electricity, rail and water supplies to support the revival of the private sector which is the main source of government revenue through taxes, fees and levies. The current scenario in which 80% of the expenditure goes towards recurrent spending, with remuneration getting the largest allocation, is retrogressive in the long run.
To put it into perspective, in 2009 the wage bill accounted for 47% of the total budget and equated to 9,2% of the country’s GDP. In the current year, employment costs as a percentage of total revenues are expected to hover around 54,5% and this will be 15% of GDP.
However, in the coming year, the minister intends to slash the percentage of salaries to the total budget and GDP to 45% and 14.5%, correspondingly, with a medium term target of 30% and 10% being set respectively. More funds should be channeled towards capital expenditure such as the construction of roads and power generating units so as to facilitate economic growth.
There is a positive spin to the upward review of civil service salaries though. It is expected that the salaries will increase by at least 50% which will be a big boost to the spending power of the workers.
This upward review, though likely to remain far below the poverty datum line of US$462 and the US$503 demanded by the civil servants, should go a long way in motivating them. The low salaries have always been a major source of demotivation among public workers even before the adoption of multiple currencies. 
As a result service delivery within government institutions has been unsatisfactory as some employees use productive time and resources to do personal work to augment their salaries. The low salary levels are also fuelling corruption.
An upward review was again essential so as to narrow the salaries gap between the public and private sectors. There is a serious skills shortage in public offices as many people are seeking employment in the private sector whilst others were forced to do menial jobs in neighbouring countries. For that reason it is imperative to offer better incentives so as to both retain current employees and also lure back those employees who have migrated to neighbouring countries.  
Since government is the largest employer, effects of this salary hike are likely to filter into the broader economy as a whole through increased demand for products. On a sector basis, the retail sector particularly companies in the FMCG, furniture and clothing industry, stand to benefit from increased spending.
On the Zimbabwe Stock Exchange, companies like Truworths, Edgars, Innscor, Delta and Econet easily come to mind. Already clothing retailers are devising strategies to benefit from the potential upturn. For instance Truworths and Edgars have increased customer credit limits to encourage them to spend more.
Payment periods are also being increased from three months to six months. The benefits are also expected to filter through the entire supply chain.
Firms supplying product to retailers should also expect growth in sales volume. Well, that is the rather simplistic view but the bottom line is that barring any major distress in the anticipated elections, 2011 is indeed likely to be a better year for the country than 2010.


Kumbirai Makwembere