The need for more high-quality jobs

By Kevin Tutani | Jul. 12, 2024

The low-quality jobs that are prevalent in the country concurrently reflect high levels of national poverty.

High-quality jobs also known as decent jobs, are work opportunities which enable people to afford a reasonable standard of living, whilst they also work in a safe working environment. With decent jobs, the workers and their families can buy or access basic goods and services such as food, shelter, clothing, education, and healthcare.

Workers in decent jobs also contribute towards their retirement by making payments to a pension fund. They are also insured from injuries and unexpected loss of work, such that they get compensation for injurious accidents or the loss of a job through the provision of retrenchment packages, which are provided for in the country's laws. Due to the many requirements which determine the decency of a job, most decent jobs are in the formal sector. On the other hand, the informal sector generally does not provide decent jobs. Although some informal work can be financially rewarding for a few workers in the sector, most informal workers are poor.

The issue of decent work is crucial in Zimbabwe because it can influence the quality and the future of the country’s economy. In any economy, household spending (also known as consumption expenditure), is usually responsible for around 60% of a nation's total economic activity. On the other hand, government expenditure, investment, and exports, always trail personal consumption expenditure.

It is also important to emphasize that labour income is the main source of income for most households. Therefore, if a country needs to secure sustainable economic growth, it will have to ensure that its households have access to higher disposable incomes, which can mostly be facilitated through decent jobs. Improving a country's employment opportunities is therefore an effective way of ensuring sustainable economic growth.

Local statistics

Since the year 2000, Zimbabwe has experienced a significant de-industrialisation process, whereby a sizeable number of formal companies have shut down. As opportunities for formal and paid employment (through wages and salaries) declined, more locals began to engage in low-productivity activities such as subsistence farming, own-account work (vendors, mechanics, hairdressers, artisanal miners, etc) or low-value wage work in the informal sector.

Currently, Zimbabwe has a total of 8.1 million people of working age within its population. This is according to a 2021 report, compiled by the International Labour Organisation (ILO). The report states that 57% of these people or 4.6 million, are not actively seeking work. These mostly comprise subsistence farmers, adults in school or university, and care providers who assist in their households (housewives, male home caretakers, etc).

On the other hand, 43% of the working population (or 3.5 million) are considered to be active in the labour market (or interested in work). Of the 3.5 million, 2.9 million (or 83%) are employed (in both the formal and informal sectors), whilst 600 000 (or 17%) are actively seeking work but cannot find it. The 600 000 are the ones referred to as unemployed. So, according to the ILO, Zimbabwe has an unemployment rate of only 17%. At first, the low unemployment rate might appear as a great achievement, however, a further analysis shows that much more needs to be done to provide the country's workers with decent jobs.

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Of those who are employed (2.9 million people), the majority of them (80%) work in the informal sector, whilst only a few (20%) work in the formal sector. So, there are as much as 2.3 million locals working in the informal sector, whilst only 584 000 work in the formal sector. This should be a major cause for concern because the informal sector generally pays very low wages, does not protect employees through trade unions and labour laws, and does not provide insurance for workplace injuries or retirement at old age (through pension benefits).

The low-quality jobs that are prevalent in the country (through a huge informal sector) concurrently reflect in the unacceptably high levels of national poverty, which was reported by the Zimbabwe National Statistics Agency (Zimstat) to be at 42% of the entire population, in 2022. This means that almost half of Zimbabwe’s population lives in lack (poverty).

Zimbabwe's formal sector is also in a terrible state, apart from its employment of only 584 000 workers. This is because it comprises mostly small businesses, which generally do not contribute significant value to the government, citizens, and the economy.

The majority (75%) of the businesses operating in the formal sector, employ less than 20 employees, whilst only 5% of the formal sector companies have more than 100 employees. Most notably, only 1% of formal sector firms, employ 50% (about 300 000 workers) of the country’s formal sector labour force (workers). Also, small firms are understood to produce goods of much lesser value (are less productive) than large firms. Therefore, the prevalence of the informal sector and small firms, are among the major reasons why Zimbabwe's economy is not performing at its highest (ideal) potential.

Challenges

There are several challenges that are restricting the growth of formal companies and therefore formal sector jobs. Some of them will be described below.

Firstly, the supply of energy and water in Zimbabwe is still erratic. Power and water cuts are known to curtail the size of companies' production runs. This limits their opportunities to enjoy benefits that come with large-scale production (economies of scale) such as lower costs and improved production expertise. In other cases, some companies cannot set up their operations altogether, especially if there is no guarantee of sufficient energy or water supplies.

Energy-intensive industries such as large-scale mining are a good example. Already, existing mining companies have applied for an additional supply of 1 800 MW of energy from Zesa holdings, since 2022. These companies are ready to expand production and employment levels as soon as Zesa can supply the requested power.

Secondly, the country's foreign exchange policies are not favourable for formal businesses. Formal firms are obliged to sell their products in local currency, which at times is valued at an unrealistic or unfair exchange rate. Exporters are the most affected since they have to surrender 25% of their export revenue at an unrealistic exchange rate. This means that they cannot expand their operations. Sadly, exporters are not only important for the sake of creating formal sector jobs but they are also crucial in ensuring that the country does not run out of foreign currency. So, anything which is not in their favour should be corrected at the earliest time possible.

Thirdly, the formal sector in Zimbabwe is increasingly being subject to unfair competition from the informal sector. In Harare's central business district (CBD), for instance, hawkers (vendors) set their stalls just outside supermarkets and formal shops that offer the same goods that they are selling. The unfortunate part about this is that the hawkers do not pay rent or any other municipal or regulatory fees, so they have an advantage over formal businesses.

Fourthly, the uncertainty created by a high-inflationary environment tends to limit the pace and scale of meaningful new investments in Zimbabwe.

Fifthly, the local financial sector is not extending adequate loans to the private sector. The ILO report of 2021 states that the financial sector's loans to Zimbabwe's private sector, constitute only 22.4% of GDP, a value which is much lower even within the Southern African region.

Indeed, any modern economy is characterised by an active financial sector that provides lending to private companies for their capital (equipment, infrastructure) and cash flow requirements. Significant loans to households also encourage the more frequent purchases of high-value goods such as vehicles, homes, expensive furniture home appliances, etc. All these works to support the growth of meaningful formal sector businesses which provide decent jobs for the citizens.

In order to be clear, it is only a feudal (or rural economy) which can afford to brag about having citizens who pay cash for high-value goods, since such an economy will always have very few rich people, ultimately. In a modern economy, which offers millions of decent jobs for citizens, there is an active lending sector, supported by the local financial institutions.

Lastly, Zimbabwe's regulatory environment is generally not supportive of the formal sector. Formal firms have to fulfil too many regulations in order to be aligned with the law. In order to operate a retail shop for example, there are council fees, business permits, tax clearances, and so forth which need to be catered for. The prices and time that it takes to access the required documentation are also prohibitive.

What's needed

Ideally, the government should reduce bureaucracy and restrictive regulations pertaining to formal businesses, so that more informal enterprises can become formal and existing formal businesses can expand their operations. Licenses, permits, and documents required from formal businesses should be reduced in quantity, price, and also the time it takes to provide them to businesses which apply for them.

If the government increases its investments in public infrastructure such as power stations, water supplies, roads, and rail, that would also draw more formal industries to the country. Providing title-deeds to resettled farmers would also result in greater infrastructural investments and job creation in farms and the overall agricultural sector.

Agriculture, construction, transport and logistics will need special attention, since they are the most job-rich economic sectors in the country. The informal sector should also not be allowed to compete unfairly against the formal sector. In that regard, informal businesses and hawkers who sell what is already being sold in nearby formal shops, should be abolished from the country's central business districts (CBDs).

Such a policy would enable formal businesses to realize more revenue and thus employ more workers, providing them with high-quality jobs. The government can also directly invite multi-national businesses based in foreign countries to establish their operations in Zimbabwe.

Major foreign firms in the textile, financial sector, vehicle manufacturing, agricultural, agro-processing, mining and other key industries, would easily add more quality jobs to the local labour market.

The local educational curricula should increase vocational qualifications (plumbing, welding, boiler making, engineering, etc), STEM and the number of PhD holders in the country. The aforementioned skills can directly contribute to economic growth and therefore, support the creation of new high-quality jobs.

Exporters should get an honestly valued local currency (ZiG) when they exchange their foreign currency as part of their surrender requirements at the RBZ. Promoting import-substitution might also have the positive effect of adding more quality jobs.

Low inflation and a stable local currency would also encourage banks to increase their lending to the private sector and households, at lower interest rates and for longer duration (terms). That would also inspire economic growth and result in the addition of quality jobs.

Conclusion

The prevalence of the informal economy in Zimbabwe should be something which keeps policymakers up at night. It is nothing to celebrate. Rather, the relevant authorities should strive to ensure that the formal sector rises to prominence again.

In 1980, the informal economy contributed only 10% to total economic activity (GDP). However, when Zimbabwe was at its worst (economically), the informal sector reached an all-time-high, contributing as much as 70% to GDP in 2008.

This shows that the prominence of the informal sector is not consistent with good economic outcomes. For Zimbabwe to have its citizens migrate from poverty to abundance, it will be essential to create a dominant formal sector which will then provide households with high-quality jobs.