Pan-African financial services group Imara, says the “perks paradise” that developed for most of the country’s corporate executives during the hyper-inflation period is under threat.
The in-depth assessment by John Legat, Imara’s Harare-based director responsible for group asset management, considers a host of factors impacting Zimbabwe business in the three years since dollarisation of the economy.
At one stage, hyper-inflation took the rate of daily inflation close to 100%, distorting costs, including managerial remuneration.
Some of the country’s highest paid executives are found among non-performing parastatals and local authorities.
The government has on numerous occasions called for major reforms in parastatals, starting with a review of salaries and perks of top managers and strict auditing.
Legat’s report, which has been circulated to international investors, is part of a regular series of studies sent by Imara to major investment centres to update fund managers on Zimbabwean developments.
It says the adoption of the US dollar as Zimbabwe’s preferred currency “has been a boon for the economy and price stability”.
He said dollarisation has led to a substantial increase in real wages, boosting consumption — adding that the middle class, all but decimated under hyper-inflation, has since begun to re-establish itself.
- Chamisa under fire over US$120K donation
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Pension funds bet on Cabora Bassa oilfields
- Councils defy govt fire tender directive
Keep Reading
The report says adjustments still need to be made, including some by corporate executives. In a more competitive business environment, managers will have to apply cost-saving measures, including some very close to home — those possible on their perks.
Legat argued: “One of the largest costs that companies have to bear is labour.
“This number not only covers those on the factory floor or at the coal face, but those in senior and middle management.
“It is likely that the greatest cost saving can be found at these levels rather than at lower levels.” “Under high inflation and then hyperinflation, companies were forced to find other means to remunerate their managers as pure salary payments would be inflated away.
“This resulted in companies paying for other benefits such as school fees, club memberships, clothing allowances, fuel and cars.” Hyper-inflation has now gone, but not the perks. Legat added: “Such benefits, which are the exception rather than the rule globally, have become the ‘new normal’ in Zimbabwe and are now expected by management.”
It was becoming apparent, however, that “companies will no longer be able to afford to pay for such perks in the future”.
A finance director can control his salary bill, but, said Legat, he has little or no control over the cost of school fees, fuel, club memberships, car maintenance and other costs.
Legat noted: “It seems inevitable that boards of directors and hence management will have little choice but to curb such perks and put the focus back onto salaries, making budgeting and cashflow management that much easier.”
He said the perks paradise explained the large number of luxury cars on the roads compared with other developing countries.
Legat concluded that dollarisation would drive many important changes and in future, “the less than competent manager or businessman may have to get used to driving a somewhat less luxurious car”.
Early this year Local Government deputy minister Sesel Zvidzai ordered local authorities to slash senior managers’ hefty allowances.
Zvidzai said most local authorities had defied the order and continued to bleed their council coffers by claiming huge allowances at the expense of service delivery.
There has been an outcry in Harare over reports town clerk Tendai Mahachi was pocketing about $22 000 per month, most of which in allowances. Other senior managers at Town House pocket up to $15 000 per month.
