Previous Zimbabwe Guidance Notes have attempted to explain the depreciation of the currency, the adoption of a new currency, the raft of conflicting government notices dealing with the payment of US dollar-based salaries and the change to the income tax bands. Those Notes were relatively simple whereas this Note may prove impossible.
We want to try something impossible and forecast an equitable salary increase for 2020.
In order to ensure that the forecast is done in a scientific and defendable manner, the departure point, as always, is the inflation rate. You will recall that in June 2019 when the inflation rate was 175.66%, the government announced that ZimStats would not publish year-on-year inflation statistics until February 2020.
The problem that this created was that several companies had granted a salary increase of between 100% to 200% but the lack of published official statistics, rendered it impossible to verify if this increase was equitable to all stakeholders.
On 16 March 2020, the February 2020 year-on-year inflation was released by ZimStats at 540.16%.
Before one can even start to formulate an opinion on salary increases, the future trajectory of inflation must be modelled.
Our model is predicting that inflation will continue to rise and reach a high point of 610.00% in April 2020. The rationale for this assertion is that in early March 2020 the currency depreciated by 17.00%, the Postal and Telecommunications Authority approved an increase of 57.00% in voice, data and sms tariffs, and banks increased charges between 140.00% and 900.00% depending on the type of service.
Predicting or modelling future inflation is almost impossible until additional data is released however, we are confident that our year-end inflation projection of 325.00% will be closer than the government’s pipe dream of 50.00%.
An additional difficulty is attempting to forecast growth for 2020. The Government has a pipe dream forecast of 3.0% growth for 2020. In February 2020, prior to the full impact of the Corona virus being known, the IMF predicated 0.8%. Our model is predicting negative growth for the year; (1.50) % for 2020. Irrespective of the divergent forecasts, one can safely conclude that business conditions in the country are dire and any salary increase will therefore place an additional burden on firms’ margins and concomitantly, profitability and survival prospects.
The counter argument to this is that employees have experienced a significant (if not devastating) erosion of their disposal income and most are struggling to make ends meet.
Our recommendation for 2020 salary increases is presented in the format of a matrix:
By way of explaining the first line of the matrix:
Where a company granted a 100% salary increase in 2019, we are recommending a 150% increase in 2020.
In addition, a variable Inflation Allowance (“IA”) is granted of 50% of the 2019 salary;
When inflation reduces below 400%, the IA is reduced from 50% of the 2019 salary to 40%;
The IA continues to decrease until such time as inflation falls below 200%, when it becomes zero.
One must agree that if the acronym VUCA (volatility, uncertainty, complexity and ambiguity) ever applied to an endeavor, in addition to attempting the impossible then formulating an equitable 2020 salary increase for Zimbabwe would be the prime example.
We are however confident that the matrix methodology presented above does represent an equitable and scientifically derived solution which is equitable to all stakeholders – but in the final analysis, the quantum of any increase will depend on company affordability.