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Cost of Living Adjustment in the current environment

Editorial Team
22/08/2019 8:03 AM

is a fact that in most sectors salaries and wages have not been adjusted to
reflect the upward trend in inflation. The challenge for many organisation
right now is on what basis should salaries be adjusted? When adjusted how do we
make them affordable and sustainable? It is noble to hear people talk about
salary adjustment and how people should be cushioned against the rising cost of
living. However, organisations need to exercise extreme caution as there is
need to balance salary adjustments with business viability.

best way to sustain higher wages is to pay people based on productivity gains
or improvements. In the current circumstances, likely, most of the reported
growth in revenue and profit by companies could largely be a result of price
movement and not volumes. The danger of making permanent salary adjustments
based on a price-driven growth is that it could turn out to be unsustainable in
the long term. It is not possible to keep adjusting your prices upwards for
your clients to cover wages which in the case of Zimbabwe are largely fixed and
guaranteed whether the company performs or not.

best way out of the current salary adjustment predicament is to pay once-off
payments that are not permanent. You can give for example 50% of the inflation
figure as a fixed adjustment and the balance as a once-off cushioning allowance
until you are very clear on the direction your business is taking. If you are
making a real profit and you are sure of the direction this will take, you can
go for a permanent wage adjustment.

is also worrying though is that in some circumstances companies are increasing
the selling prices of their commodities even in cases where input or resource
prices have not shifted that much. For example, you may find that resources or
input prices have increased by 20% but the company goes on to increase the
selling price of its products by 150%. That is bad business practice. In
Zimbabwe, very few if any company reduces its prices when input prices have
gone done. It is good business practice, to sometimes take profit margin
reduction to keep your market share. Recklessly increasing prices could result
in you losing your market share. When hard pressed your clients will end up
looking for alternatives and once they go you may not be able to bring them
back in the future. The challenge seems most companies are focusing on making
money at all costs instead of focusing on competitiveness.

key takeaway point to note here is that companies need to aim for
competitiveness in both the local and foreign markets. The OECD defines the
country or national competitiveness as "the degree to which a country can,
under free and fair market conditions, produce goods and services which meet
the rest of the international markets, while simultaneously maintaining and
expanding the real incomes of its people over the long term." For Zimbabwe
to achieve the level of competitiveness, we need to overhaul the whole approach
to how we do business. I am not going to focus on national competitiveness but
on the competitiveness of local firms, which contribute to country
competitiveness. We can't even talk of national competitiveness because so far
it seems we cannot leverage the resources we have to make Zimbabwe a very
competitive country.

lack of competitiveness for Zimbabwean products can be traced directly to the
fact that Zimbabwean organisations are unproductive. Let me dispel a few myths
about productivity before going back to competitiveness and its link to
productivity. The first myth is that production equal productivity.
Productivity has to do with the efficient use of resources to produce products
and services that the market is willing to pay for. Some companies have 100%
capacity utilisation but very unproductive. Some companies are exceeding their
production targets but also highly unproductive.

second myth is that most people think that every profitable company must be
highly productive. While that logically makes sense, in practice it does not
follow that a profitable company is highly productive. Profitability in
companies can change for reasons that have little to do with productivity. Such
factors include price inflation or cost may bear no relationship to the
efficient use of resources. In the Zimbabwean situation, most companies are
likely being profitable by increasing their prices at a much faster rate than
the price of inputs (price over recovery). Zimbabwean companies are over
recovering prices but they always blame this on the high cost of labour and
other inputs. Instead of reducing the prices of their products when prices of
inputs decrease they celebrate the higher margins that make the products very
uncompetitive outside our borders.

areas will our local industries need to focus on to increase productivity and
competitiveness? A business-friendly regulatory environment will help but it is
unlikely to be the major source of competitive advantage. The first area that
can give us a competitive advantage to look at our capital structure. How
modern are the tools we use and are they backed by the latest technology? With
a "highly educated" workforce what stops Zimbabwe to leverage on this
if this is a true competitive advantage of the country. Automation, modernisation,
and ICT are core areas we can leverage on. This must even start with the
government. If the government was modernised it would never need the current
levels of employees it has which adds to the cost of doing business.

other factor that can give us a competitive advantage is to improve the quality
of labour we have. We have a "highly educated" workforce that is
running down companies. The quality of management is appalling and this is the
hurdle we have to face as a country. Poor leadership and management lead to
misuse  of resources thereby impacting
negatively on productivity. Poor managers borrow money and instead of financing
the business they squander the money on non-core activities. In the areas of
skills development, we need to shift the focus to training hands-on people who
are going to make things work instead of the current focus where 90% is on
training office people who are all aspiring to be managers to manage other

has no option but to raise the level of productivity so fast so that we can
compete with other nations. India produces information technology engineers in
abundance and they export to all parts of the globe. Why can't Zimbabwe produce
its engineers be they mining engineers, agriculture engineers, data scientist,
etc. and export the skills. Currently, we have exported low-level skills that
bring some diaspora remittances but we could get more if we export highly
skilled individuals. Imagine if we had let's say 50 000 mining engineers all
over the world. The benefits would be enormous. Yes, we claim to have a highly
educated workforce but if I may ask; which field are we blessed with highly
skilled and educated people except for politics? We need to accept that we do
not have the skills to raise the level of productivity and develop a strategy
to up the levels of skills across key strategic areas.

companies must go out there and hassle with everyone. That way they develop the
right level of managerial skills and technology required to compete on the global
stage. Remember the only way to sustain higher wages is to increase

Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant - Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. https://www.linkedin.com/in/memorynguwi/ Phone 481946-48/481950/2900276/2900966 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com


Editorial Team

This article was written by one of the consultants at IPC

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