Institute for War and Peace Reporting | Giving Voice, Driving Change

Jury Out on Social Contract

Is government bid to halt downward economic spiral all its cracked up to be?
By Mike Nyoni
Officials have persuaded business and labour to sign a “social contract” with government, but some observers are sceptical about whether it can stall the economy’s slide towards disaster, while others question the government’s motives and sincerity.



But the historic significance of the occasion is that since the social contract concept was first mooted in 1996, it is the first time that government has signed it, showing an admission on its part that urgent action must be taken to halt the economy’s downward spiral.



Perusing the protocols signed in Harare early this month, one is left in no doubt that government is promising far more than it can deliver. The partners signed three protocols on stabilising incomes and pricing, restoring productivity and managing foreign currency.



The preamble to the first protocol sums up the characteristics of a dysfunctional economy and is also an acknowledgement by all parties, including government, of the enormous problems facing the economy.



On the public stage, government continues to blame the economic malaise on western sanctions, however.



The contract lists the following as major problems facing the country: a shortage of foreign currency and basic commodities; hyperinflation; low levels of savings and investment; an unsustainable budget deficit; high unemployment; and low capacity in industry and in the key agricultural sector.



It also notes high income differentials, widespread poverty and a crippling brain drain, which has affected the country for nearly a decade.



The purpose of the contract is for the three partners - government, business and labour - to agree on operational and behavioural approaches that will help cure the above economic ills for the benefit of society. In essence, government must provide an environment conducive for business to operate in by encouraging investment and guaranteeing its protection.



Business should avoid bad practices like overpricing of goods but should promote industrial productivity and employee safety, while labour must make reasonable wage demands commensurate with productivity.



As an agreement between “equal partners” the social contract was negotiated on the basis of three key principles: tolerance for each partner, a common vision and acting in good faith. All three protocols, which took effect at the moment of signing, are to hold for the next 12 months.



For its part, government undertook to cut its budget deficit to 10 per cent of GDP, as this has been identified by labour and business as one of the major causes of rampant inflation (officially at 3,700 per cent). Government pledged to bring month-on-month inflation to below 25 per cent by year-end; to review tax incentives for workers; and to reform the public service, which currently takes up 75 per cent of its wage bill.



It was also agreed that printing of money fuels inflation and that control of the foreign currency exchange rate is costly and counterproductive as it “encourages unethical business practices” such as trading on the black market. Wholesale price controls were also identified as a major cause of price distortions, which fuel the black market in scarce commodities.



All parties pledged to promote industrial harmony. Business promised to supply goods and services at affordable prices and raise productivity.



Labour, the weakest of the “equal partners”, in terms of bargaining power, said it would fight for fair wages for workers and their empowerment through share ownership in the companies they work for.



But analysts in Harare say the contract could become a victim of its own utopian ideals.



A senior member of the Crisis in Zimbabwe Coalition, speaking in his personal capacity, said the whole enterprise could crumble due to cynicism and opportunism by business and labour, borne of previous failures by government to meet its side of the bargain.



A labour analyst with the Zimbabwe Congress of Trade Unions said it would be difficult for workers to exact high wage concessions from employers, given their small numbers and their inability to press their demands through industrial action. “It is in the interest of government and business to talk about industrial peace and harmony but certainly not in the interest of workers,” he said. “Already there is plenty of room for friction. Business would very much love not to pay high wages to boost the bottom line.”



An economic analyst at a major commercial bank said there was a lot of “duplicity” going on. He said it was not possible for business to sustain “affordable” prices so long as there was no foreign currency in the formal banking system. “Both government and business know that,” he said. “Once business starts raising the issue of input costs government will turn around and accuse them of reneging on the social contract.”



He said so long as agriculture remained comatose there would be very little foreign currency generation and added that the cost of production would always be determined by the cost of foreign currency, “a scarce commodity”.



“Government cannot control what happens on the black market and businesses which want to survive have to respond to those costs,” he said.



The only other sources of foreign currency, the partners accepted, were foreign lines of credit by business, remittances by Zimbabweans in the diaspora and foreign direct investment, all of which are beyond the control of the cooperating parties.



A political scientist in Harare said the deal was no more than a publicity stunt by government to show that it was doing something about the economy. The other partners clearly had their arms twisted into signing the contract, he said, adding that the government stood to benefit more from it because it had no solution to the country’s spiralling crisis. Through the contract, it would be in a better position to control what business and labour do.



“These are entirely utopian ideals by people who don’t mean what they say,” he said. “For Reserve Bank governor Gideon Gono this is an endorsement of his so-called economic turnaround strategy although we all know things are getting worse. Workers know that.



“Business is equally guilty. All the partners are talking about a common goal, a common vision and good faith but we know the truth. When the social contract was mooted for launch on March 31, business rushed to increase prices without any regard to costs. Since the latest signing, prices of basic commodities have skyrocketed.”



The political scientist said there was no mutual trust, let alone good faith, between the social partners and pointed to the arrest in February of business executives for increasing the prices of basic commodities without government’s approval and the beating of trade union leaders last year for demanding better wages and free antiretroviral drugs, which had bred animosity.



He reserved the last word for government. “Government is not looking beyond next year’s elections,” he said. “Can you imagine how government can reduce its deficit when it is raising civil servants’ salaries by 600 per cent? And it is unrealistic to expect government to talk of reforming the civil service ahead of such a crucial election. They are part of its tools of survival. Only the naïve can expect a cut in the civil service.”



He pointed to the need for food and power imports as some of the key demands which government could not forgo.



Government recently announced plans to increase the police force from the current 29, 000 to 50,000 in preparation for the joint presidential and parliamentary elections scheduled for March next year. “Those people will need to be paid, yet we are told of a protocol which will reduce government spending and inflation. This shows you that Gono will have to keep the money printing press at full throttle. The whole thing about price stabilisation is a bad joke,” he said.



Callisto Jokonya, president of the Confederation of Zimbabwe Industries (which represents business in the social contract), said people were putting the cart before the horse. He told a radio talk-show programme that no contract had been signed. “What was signed by the partners last week are protocols,” said Jokonya. “There are still five more protocols to be signed before we can talk of a social contract in its true sense.



“The actual social contract should specify who does what and performance should be measurable. Once that is done, with commitment by the social partners, economic turnaround is achievable in three months.”



Gono, who acted as the “advisor” in the negotiating process, urged caution. “The journey has just started,” he said soon after the protocols were signed. “In strategy they say the devil is in the details of implementation.”



Before the ink was dry on the social contract, power utility Zimbabwe Electricity Supply Authority, ZESA, on June 4 increased power tariffs by 50 per cent and the Harare city council adopted a supplementary budget to increase rates and other charges at the beginning of next month. This will see a new wave of price increases as business passes the new costs to the consumer.



The government has put in place the National Prices and Incomes Stabilisation Commission which industry and international trade minister Obert Moyo say is now ready to begin its work of taming daily rises in prices of goods and services. But by allowing quasi-state enterprises like ZESA to increase tariffs, the government has already shown its lack of sincerity, say observers.



Mike Nyoni is the pseudonym of an IWPR contributor in Zimbabwe.