Country Report Zimbabwe September 2010

Economic policy: Pay demand pressure increases

Inflation slowed for the second successive month-from 6.1% (year on year) in May to 5.3% in June and 4.1% in July. However, the decline primarily reflects seasonal reductions in some food prices, and these are about to be reversed with the announcement of a 10% increase in the price of bread (attributed to the increase in world prices). Because the country's wheat harvest this year will be the lowest on record, at only 11,000 tonnes-as against annual consumption of around 300,000 tonnes-prices of wheat-related products are forecast to increase further over the next 12 months.

Even though inflationary pressures appear to have abated, at least temporarily, trade union militancy is on the rise, especially in the public sector. Inspired in part by the pressure that South African public service unions have applied to their government, Zimbabwe's civil servants have renewed threats to take strike action later this year. Public-sector unions are demanding that the government dip into its "windfall" earnings from the sale of diamonds from the Marange fields to increase salaries. Zimbabwe's public service unions have traditionally failed to mount effective strike action and ministers are confident that any new strikes will be equally ineffective. However, parents are concerned that, as in 2008, a threatened teachers strike would seriously disadvantage children taking O- and A-level examinations in November.

The private-sector Zimbabwe Banks and Allied Workers' Union has also called a strike, for September, demanding an 80% pay increase and an end to retrenchment by banks, which have laid off more than 1,000 workers in the past year. The lowest-paid bank employees currently earn US$273 a month, and employers say that they cannot afford to pay more: one of the country's largest banks, South African-owned Stanbic, has said that its staff costs doubled to US$5m in the first half of 2010; BancABC estimates that staff costs-which represent 58% of total expenses-have increased by 30% so far this year. The dispute comes against a background of demands by the RBZ that banks reduce their charges, cut interest rates and pay interest on demand deposit accounts-all of which have been rejected by banks as unrealistic in current conditions.

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