Wednesday, February 12, 2014


The government's announcement recently that it will set a minimum wage is good news for the economy and also for the worker, but not in the way they think.

As it is now we have a minimum wage of sh6000 a month which was decreed in 1984, but inflation and an increasingly higher standard of living means the number is worse than redundant.

Our workers' union have been pushing for a revision of this number but the government has argued it's best left to individual employee employer negotiation, fearing that if they set a number investment in the country will become unattractive.

Both are right but for different reasons than they think.

Let us take it from the investors point of view. Investors like cheap labour if they are producing for a market that is not finicky about standards and one that does not consume much anyway. In such a market you can literally source your labour off the streets and not care about what value they are bringing to the operation other than their sweat.

Looking at the payroll the cost of this labour maybe cheap but the attendant costs of welfare - meals, health and labour laws, change this figure dramatically.

Imagine you start a backyard brewery for labour you can employ the children to collect water from the well, the wife to peel the matoke and you can all jump into the canoe to stamp on the bananas until they are a nice consistent mash ready for fermentation.

Your labour is inexpensive, need no highly specialized skills and are readily available. The market are your neighbours and at worst the village drunks on market day.

Imagine you wanted to scale up this operation to supply the sub-county, the district maybe even the nation.

For starters your labour has to change, initially in terms of quantity and eventually quality. Now you will not only be peeling the odd bunch of matoke but probably truckloads. What was a small loss occasioned by the temporary lack of focus by the wife in which she peeled off more banana than peel becomes a much bigger deal when it happens with a few thousand bunches. The workers in tying to beat the system by collecting 18 liters at the well instead of the 20 liters that a full jerrycans holds will cost you as well. And finally ensuring quality control across 100 mashing canoes is a whole different ball game than when you could lord over the wife and kids to step some more in your single canoe operation. And finally you will need a more advanced skill than your seasoned tongue to ensure the standards across your product is good to ship out to market.

If the government raises the cost of labour, your first instinct will be to cut staff. Initially you may cut numbers and pay the remaining workers a bit more. But the market demands that you step up production. But getting more staff will kill your margins, so what are you to do? Mechanize!

The one off cost of plant and machinery maybe daunting but the running cost of these machines, which can be worked more than the stipulated eight hours a day, over the life of the machine makes more sense when viewed against the stress and cost of maintaining a work force.

In addition with increased production -- you have to sweat the machines to pay for themselves, you will have to step up your marketing, word of mouth just will not do going into the future.

"Uganda workers are the least productive in the region and its not because they are lazy, it's because the capital injected into their work process does not match regional standards...

Think about it you and your family combined cannot churn out as much beer in a year as a single worker in Uganda Breweries can in a week.

So the workers will be paid better, but the kind of worker who will be required is not that who can mash banana underfoot but one who can, using chemistry, manage the fermentation process of thousands of liters of beer. The worker required will not be the one who can carry four crates at a go but one who can man a forklift. The worker required will not be the one who has to grin and bare the hot sun as he sells beer in the market all day but one who can understand the market and design marketing campaigns that will lead to greater sales.

So yes the minimum wage is good for the economy in that it will force us to inject more capital into our processes, boost production, improve efficiencies and pay the worker better, not just any worker off the street, a more educated and skilled one.

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