The National Employment Councils (NECs) in Zimbabwe: Are They Killing the Goose?

The National Employment Councils (NECs) in Zimbabwe: Are They Killing the Goose?

Written and Presented by Gloria R. Ndoro-Mkombachoto at the HUMAN RESOURCES (Pvt) Ltd Labour Relations Conference held at the Jacaranda Room, Rainbow Towers, on the 24^th February, 2011

Good day ladies and gentlemen. All protocols observed.

Just under a year ago in May 2010, Zimbabwe was still in a major economic crisis with unemployment hovering at around 94% and our industries working at less than 40% of capacity. Fast forward to February 2011, the situation has not changed much; Zimbabwe is in a state of slow and painful change characterized by structural transformation. With very little to jump-start the economy, Zimbabwe must revitalize and grow this economy. The template upon which Zimbabwe must chart its economic path in the short, medium-to-long term is characterized by the following factors:

o   Erosion of competitiveness which has long been undermined by two decades of above average inflation culminating in unprecedented hyperinflation during the period 2005-2009.

o   Destruction of the national savings base

o   Liquidity and budgetary constraints and,

o   Eradication of the middle-class as a result of rampant unemployment

The dollarization of the economy has brought about great hope, tangible opportunities but also “blood, sweat and tears.” Our human resources are going to play a pivotal role in the transformation of our economy, but first, we now have to live within our means. This meansthat wage negotiations cannot be based on “economic hardships being felt at the time” but on the productivity of thelabour force. We cannot simply increase wages willynilly, say by 12% or more when our GDP is growing at under 4%. Before we talk about the growth of the economy, we must first plug in the leakages, unchain ourselves from the shackles of the past ten or so years, develop a master plan to turn the economy around at firm and sector level and then grow the economy.

The National Employment Councils (NECs) are at the centre of this economic transformation.  The parties to NEC must all be in belt tightening mode if the transformation of the Zimbabwean economy is going to be achieved hence it is unfortunate that we now have the unfortunate set of circumstances we are currently witnessing, circumstances likely to derail turnaround of Zimbabwe Incorporated.

Government, Labour, Employers and Employees in all the sectors of our economy are all tied at the hip. Zimbabwe cannot afford right now to have any one of these stakeholders, (in particular labour and those that purport to speak for and represent labour) pulling away at cross purposes in another direction.

The Legal Framework

International Labour Standards[i]

Zimbabwe is a signatory to International Conventions administered by the ILO.Inaddition, it also has an obligation to uphold the principles enshrined in the 1998Declaration on Fundamental Principles and Rights at Work, which encourages ILOmember states to respect the eight core Conventions, with or without ratification. ILOConventions place an obligation on the government to respect, fulfil and refrain fromviolating the socio-economic rights of men and women in respect of decent and fairworking conditions. The Conventions set minimum standards of application andgovernments are expected to report on the progress of their implementation.Under Zimbabwean law, ILO Conventions do not automatically become part of thenational law; for this to occur they have to be domesticated through an Act ofParliament.However, these Conventions have had a significant influence on the national

labour legislation in Zimbabwe.

Statutory Law

Firstly, the Constitution of Zimbabwe, which is the supreme law of the land, does notexpressly provide for the realization of socio-economic rights such as labour rights.Labour and employment issues are only enshrined in various Acts of Parliament and aredivided into the public sector, private sector and export processing zones

The Labour Act is the principal legislation governing the general aspects of theemployment relationship in the private sector. Some aspects of the employmentrelationship are regulated by the National Social Security Act [Chapter 17:04], whichallows for the establishment of social security schemes for the provision of benefits foremployees and provide for the labour inspection framework.

The National Employment Councils (NECs)

For those who are not familiar with NECs, here is a short definition of who they are: the NECsare representative bodies of employer and employee organizations. The NEC is ordinarily made up of four structures namely: the Council, the Executive Committee,the Negotiating Committee and the Local Joint Committee. Key to these structures areDesignated Agents (DA) and Arbitrators who are responsible for resolving disputes interms of the Labour Act.

The NEC Constitution

1. The Council – A national structure composed of Councillors who meet once a

year at an Annual General Meeting. The council is the supreme policy and

decision-making organ.

2. Executive Committee – A national structure whose role is to implement Council

policies and receives monthly reports from NEC management.

3. Negotiating Committee – A national structure appointed by the Council to

conclude or amend the Collective Bargaining Agreement on behalf of the

Council. It deals with appeals from the Local Joint Committee.

4. Local Joint Committees – Regional structures appointed by the Council in any

area within its jurisdiction. They consist of equal number of representatives from

the employers’ organization and the trade union. One DA in each region is

responsible for conciliating disputes between employers.

Under Zimbabwean law, the industry agreement made by NEC is binding on all employers and employees in the industry, whether or not they are members.

Collective bargaining

Collective bargaining in most sectors  takes place at NEC level and, in a fewcases, at company level through functional Works Councils. The Negotiating Committeecarries out collective bargaining at NEC level and Works Councils at company level. Interms of the Labour Act, workers are entitled to negotiate at company levels for specificbenefits through Works Councils. However, nowadays, veryfew Works Councils are functional in the most sectors of the economy. In a country with a high unemployment rate, workers lack the desire nor inclination to engage an employer and in the past when interviewed have highlighted the problems of victimization and intimidation as the main causes of thenon-functionality of Workers’ Committees and Works Councils.

During the past 10 or so years, NECs were left to their own devices by their key stakeholders and as a result, their mode of operation developed  a life of its own. Instead of remaining at the centre at they must objectively represent both employers and employees equally, the NECs shifted to the left and took  posture where their role has been to argue and push for higher wages regardless of what the fundamentals are for the employers at business and organizational level. There are allegations that, the severe economic hardships of the last decade made them loose focus and as their own livelihoods depend on income from a percentage from the sector employees, they set aside their mandate for the self gain and profit motive.  Consequently, most sectoral NECs are now perceived by most employers to represent the interests of the employee organizations only.

Investigations done by the writer have revealed that where there is consensus and progress in wage determination where the employer negotiates directly with the Workers’ Council. This is because when the business is struggling, the employees on the ground, experience it on a daily basis with the employer and therefore during collective bargaining, they tend to be reasonable. There are many instances where employees have chosen to have nil increments over determined periods of time if the employer allows for natural attrition only whilst guaranteeing nil retrenchments.

Recent disagreements

In what was perceived to be a controversial move by 17 employer associations under the Employers Confederation of Zimbabwe (EMCOZ)  after a December 2010 meeting, employers agreed to make a once-off salary review in 2011 because of the tough operating environment. [ii]

However, this it was feared that this stance could fuel more job boycotts by employees. Collective bargaining ended in deadlock in many sectors in 2010 after unions in many sectors represented by their sector NECs pushed for salaries above the poverty datum line now estimated to be over US$500. The Zimbabwe Congress of Trade Unions (ZCTU) has been under the rebuttable presumption that many companies are paying “slave wages” and use the subdued economic activity as an excuse.

There have been numerous cases of litigation between employers and employees because of failed salary negotiations and this has been disruptive to business operations worsening the already challenging operating environment for most sectors of the economy. ZCTU has argued for wages relating to what they have referred to as “price and income ratio”, another phrase for wages based on “economic hardships”.  On the other hand employers watched helplessly as NECs bulldozed them into awarding unsustainable salaries during collective bargaining hence the deadlock.

As a result, labour relations in Zimbabwe have been rocked by endless salary disputes and retrenchments, as the economy has not been performing well owing to a decade- long economic stagnation and hyperinflation. The introduction of the multi-currency regime in during the first quarter of 2009 brought some long awaited relief to the economy but most companies operating within both the productive and retail sectors are still battling.

Figure A below summarizes how it has become a loosing battle for all stakeholders, including the very NECs who would have engineered the cycle leading to the “killing process of the goose that lays the golden egg.” 

The goose are the employees who if they loose their employment as a result of mechanization to minimize labour relations troubles, amongst other issues and retrenchments because employers cannot afford the higher wages the NECs are demanding, the NECs would have depleted the very catchment pool of employees that they rely on for their fee income.

Figure A -  NECs: Killing the Goose

Implications for decision making

At a 2010 British Council Management Express thought leadership seminar held in Harare, in August 2010, renowed economist and University of Zimbabwe’s Graduate School of Management academic Professor Tony Hawkins addressing delegates in a presentation entitled ‘The New Normal: Implications for business decision-making in Zimbabwe 2010’, identified six areas where Zimbabwe’s New Normal can best be understood as follows: market size; skills; finance and capital; foreign exchange; infrastructure (both hard and soft); and institutions.

What might be of major interest to delegates in this conference are the key observations made by Hawkins in relation to skills, wages and labour productivity. 

With specific regards to skills, Hawkins noted that Zimbabwe used to be “well-endowed with skills with a strong educational and training sector.” There has been a “severe brain-drain which has also adversely affected the education sector that no longer has the capacity to regenerate skills.” Today, skills shortages are becoming manifest in specialist areas such as “tobacco and horticulture production, surveying, geology  etc.” On the other hand, we have seen some sectors like the public services and municipal services sector having bloated workforce structures which are proving to be unsustainable.

With specific focus on wages and productivity, Hawkins argues that old model where “wage awards that were driven by what employees needed to survive on rather than their productivity” is not sustainable under the New Normal of dollarization. To buttress this point, Hawkins cited a new World Bank report  which estimates industrial wages for casual labour at $215 a month in Zimbabwe compared with $129 in Zambia and $67 in Malawi. Hawkins further contended that “where the exchange rate is fixed or externally determined” business costs and productivity must adjust accordingly underscoring the fact that “wages must be linked to productivity”. [iii]

The way forward for Zimbabwe

1.       Link remuneration to productivity

2.       Link wages and productivity to competitiveness

3.       Reconstitute the NECs and make them more accountable to key stakeholders

4.       Strengthen the Workers’ Councils through education and training

5.       Perhaps government is the missing link. Would a tripartite agreement between government, labour and industry.

ANNEXURE

Is Zimbabwe competitive?^[iv]

Is Zimbabwe competitive? Are all facets of Zimbabwe’s economic sectors competitive? Are Zimbawe companies competitive? With the globalization of markets, the increased mobility of corporate assets, and the need for productive human resources, this question has become all the more complex to answer. It is important to answer this question so that we are able to tackle questions on certain fundamentals such as: financial performance and labor productivity.

We have to be interested in the degree to which firms operating in Zimbabwe have fundamentally different financial structures and performance compared to firms located elsewhere.

With respect to financial competitiveness we have to ask the following questions:

• If one were to invest or operate in Zimbabwe, how would the firm’s asset structure likely vary compared to a firm operating in some other country in Africa or average location in the world?
• In Zimbabwe, do firms typically hold more cash and other short term assets, or do they concentrate their assets in physical plant and equipment?
• On the liability side, do firms operating in Zimbabwe have a higher percent of payables compared to other firms operating in Africa, or do they hold a higher concentration of long term debt?
• The structure of the income statement is also telling.
• Do firms operating in Zimbabwe have relatively higher costs of goods sold, operating costs, or income taxes compared to firms located elsewhere in the region or the world in general?
• Are returns on equity higher in Zimbabwe?
• Are profit margins greater?
• Are inventories held longer?

In many instances, people make all the difference. In addition to financial competitiveness,  it is crucial to assess labour competitiveness by considering the extent to which labor deployment and productivity in Zimbabwe differs from regional and global benchmarks. In this case, we have to be interested in the amount of labor required to operate a typical business in Zimbabwe and the likely returns on this human investment. Questions to be asked include the following:

• What is the typical ratio of short-term and long-term assets to employee?
• What are typical capital-labor ratios?
• How different are these ratios to those in Africa in general and the world as a whole?
• What are the average sales and net profits per employee in Zimbabwe compared to regional benchmarks?

Again, these and over 50 other measures of labor productivity have to be considered with a view to assisting managers in gauging the competitive performance of Zimbabwe at the global level. With the globalization of markets, greater foreign competition, and the reduction of entry barriers, it becomes all the more important to benchmark Zimbabwe against other countries on a worldwide basis.

The exercise of generating international benchmarks and measuring gaps is not an obvious task. We first, need to aggregate across firms in Zimbabwe. Second, we need to control for exchange rate volatility by eliminating all currency effects and finally, comparable financial standards and comparable categories such as assets, liabilities, income and ratios by country, region and on a worldwide basis ought to be used.

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[i]http://www.ilo.org/public/english/region/afpro/harare/download/issues_paper_27.pdf

[ii]http://www.thestandard.co.zw/business/28259-strikes-loom-as-emcoz-calls-for-lid-on-salaries.html

[iii]http://labour.co.zw/index.php?option=com_content&view=article&id=52:labour-productivity-should-determine-wages&catid=13:articles

[iv]http://www.researchandmarkets.com/reports/344240/the_economic_competitiveness_of_zimbabwe