Dog-eat-dog economy

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Currently we have an economy that keeps giving us monthly surprises. It is now a dog-eat-dog economy.

The Brett Chulu Column

To understand the volatility and predatory tendencies in the economy, we have to first answer the question: who is economically active?

Who is active?

There were 13 061 239 of us in 2012. With an annual growth rate of 1,1%, we should be 13 691 249 of us today. For every 100 of people in the so-called economically-active population, the 15-64 years cohort, there are 73 dependants.

A total of 5 120 540 of us are classified as economically active. Of this economically-active population, 88,9% are said to be “employed”. It does not tell us how many are formally employed. Paid employees are 1 548 651. Those who are self-employed are 2 560 776. Unpaid family workers are 422 115.

One would be tempted to think that the paid employees would constitute formal employment. If we take paid employees, at face value it would suggest a 30,2% of the economically-active people are formally employed.

If we granulate that paid-employee composition, we discover that domestic workers are included. We have just about three million households in Zimbabwe. For the sake of erring on the side of caution, we can assume that a quarter of these households employ at least one domestic worker. That would mean only 770 000 000 people are formally employed, giving us a formal employment rate of 15%.

That estimate is closer to 800 000, the number of formal banks accounts held in our country. It is widely acknowledged that artisanal miners are about 300 000. My own studies of the kombi industry place those directly employed in the kombi industry at about 120 000. Domestic workers, conservatively speaking, are 700 000 thereabout. We can account for at least 43% of 2 560 776 self-employed persons – the remaining 57% is taken up by those engaged in informal agricultural undertakings, vendors, informal traders and cottage industries.

Hustler mentality

With every 100 persons in the economically-active range having to feed and clothe 73 people, and with an 85% chance that they are not formally employed, people are forced to be hustlers to survive.

The classic grounded theory of invisible entrepreneneuring derived from a study of the kombi industry, sheds light on the psycho-economic behaviour in our economy right now. Pressure to survive, leads the informal economic players, whose income is largely uncertain, to be very sensitive to both small gains and losses (micro-margin sensitivity) and alertness to economic opportunities (unanticipated windfall and engineered windfall). These patterns explain strange economic phenomenon occurring these days.

You now have a situation where informal traders are now literally sitting outside retail shops selling goods sold in the retail shop at a huge discount.

A mini-survey I did this week showed that same brand items are heavily discounted by vendors. Exercise books are being sold at a discount of 36,3%. Washing powder (imported brands) prices are undercutting formal retailers by 37,5%. Bathing soap is selling for 50% below what formal retailers are selling.

How do you explain that phenomenon? The pattern of windfall uncovered in the study of the kombi industry explains this phenomenon. The Reserve Bank of Zimbabwe (RBZ), through its import priority list, government’s fiscal indiscipline that prompted the RBZ to introduce quasi-currencies (RTGS balances, bond notes and Treasury Bills), forced equality of quasi-currencies and the United States dollar (the currency of account) handed a windfall to informal economic players who always have their entrepreneurial antennae up.

So vendors can buy from suppliers using electronic payments (cards, mobile money). They can deliberately sell below the wholesale purchase price for cash. That is where the catch is. Cash is scarce. Customers who compare what they can pay inside retail shops and the pavement shops see a whopping discount of 37-50%. You know who is going to win that contest.

The customer will pay the vendor in cash, either bond notes or US dollars. They then either buy or sell the cash at huge premiums which is wired to their mobile or bank accounts. They then purchase more wares using the quasi-currencies reflected as mobile or bank balances. The formal retailer is forced to accept quasi-currencies and to restock, is then forced to source foreign currency at ridiculous premiums of anything between 40% and 50%. That premium is passed on to the consumer.

That is an unanticipated windfall handed to an informal trader. So, the informal trader’s real business now is not selling wares, but mopping up cash and selling it for a living. It is dog-eat -dog, the hustlers’ economy.
You have this big loophole in the financial sector at the moment. Those who bring in foreign currency are being paid in foreign currency. That is another unanticipated windfall. So, what do the privileged few who can still be paid in foreign currency and banks mollycoddle them by allowing them to withdraw salaries in hard currency do? They simply stretch their salary by selling the hard currency on the grey market in exchange for electronic currency for 40% or so premiums. They can then enjoy the forced parity when purchasing local goods, all thanks to skewed monetary policies that are dead to the reality that 85% of economically active people are not formally employed.

Something must give in

With funny money doing the rounds something must give in. Creating money from thin air means someone’s money is vanishing into thin air. The informal sector is crowding out the formal sector.

If the skewed financial and economic policies continue in their current trajectory, we expect the formal sector to spew out more people onto the streets to join the hustlers’ club.

The more this happens, the more our authorities will react with even more maladaptive policies, setting rules for a game that has moved on. The informal sector is a behemoth, whose profits, wages and rentals, not accounted for in our official GDP, are no less than US$1,5 billion. It is a whole sub-economy. It is cash-hungry. When it comes to the war for cash, the informal sector beats the formal sector with ease. It is dog-eat-dog.

Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.

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