Türkiye-Syria Earthquake

Rebuilding After the Türkiye-Syria Earthquake

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on what is happening in labor markets that are making headlines worldwide, bringing you up to date on the news.

A massive 7.8-magnitude earthquake struck southern Türkiye and northwestern Syria in the early morning hours on 6 February 2023. The quake was followed by a series of aftershocks and a 7.5-magnitude tremblor about nine hours later. The Türkiye-Syria earthquakes occurred near the border and were felt as far away as Lebanon and Egypt.

The earthquake was Türkiye’s worst seismic event since 1939, leaving behind destruction, loss of life, and economic damage. The death toll has reached over 54,000, and around 130,000 more have been injured. Some 24 million people in both countries have been affected in an area spanning 450 km. According to the Center for Strategic and International Studies, the quake hit the heart of a border area home to millions of Syrian refugees during great uncertainty in Turkey and across the region.

Since the two earthquakes on 6 February, there have been thousands of aftershocks, causing fear among communities.

The situation in Türkiye

Turkish President Recep Tayyip Erdogan declared a state of emergency in 10 impacted provinces for up to three months a day after the disaster. The affected provinces have some of the highest poverty rates in Türkiye and host over 1.5 million Syrian refugees.

Estimates of damage

There are several estimates of the destruction caused by the 6 February Türkiye-Syria earthquakes. JPMorgan said the destruction of Türkiye’s physical infrastructure could amount to US$25 billion. Meanwhile, the World Bank estimated the damage to be around US$34.2 billion. According to the Turkish Enterprise and Business Confederation, the total cost of destruction could be as much as US$84 billion.

A long-term needs assessment by the Turkish government with support from the United Nations Development Program (UNDP), the World Bank, and the European Union counts the earthquake damages at over US$100 billion.

Reconstruction efforts

“Türkiye’s immediate and future needs are immense and span the whole range from relief to reconstruction,” said Humberto Lopez, World Bank Country Director for Türkiye.

The Turkish government has erected tent camps and container homes on the outskirts of destroyed cities to shelter the millions displaced. It has also issued rebuilding regulations to enable organizations to help in the urgent task of building new homes. In addition, the government has launched a temporary wage support scheme and banned layoffs to protect workers and businesses. These measures will remain in effect until the end of the three-month emergency rule.

Erdogan—facing an election this summer—pledged to rebuild all destroyed buildings and complete housing reconstruction within a year while preparing a program that would “make the country stand up again.” Less than three weeks after the disaster, construction for tens of thousands of housing units has begun.

But engineers and architects have noted that clearing debris would take considerable time. “It’s hard to put a timeframe on how long that would take since 10 provinces were affected, and that depends on the capabilities, organization, and coordination of the public authorities,” Eyup Muhcu, President of the Union of Chambers of Turkish Engineers and Architects, told Al-Jazeera.

A fragile economy

In addition to repairing and replacing damaged buildings and infrastructure, citizens need to be supported financially, says the Middle East Institute.

The reconstruction costs add to the woes of Turkey’s fragile economy, which has been rattled by hyperinflation and a cost-of-living crisis in recent years.

Caroline Holt, Director for Disasters, Climate, and Crises at the International Federation of Red Cross and Red Crescent Societies (IFRC), estimates that much of the recovery work in Türkiye will be done in two to three years.

But in Syria, the IFRC is looking at five to 10 years.

The situation in Syria

Although the earthquake’s epicenter was in southern Türkiye, the calamity had devastating effects across northwestern Syria. The quake hit a region shattered by more than a decade of civil war, compounding an already dangerous humanitarian crisis.

According to the UN Office for the Coordination of Humanitarian Affairs, the densely populated northwestern region is home to 4 million people who rely on humanitarian aid.

While the international community mobilizes to help Türkiye with its disaster needs, the ability to do so for Syria is much more complex. Demolished roads and tensions between rebel-held and government-controlled parts of the country slowed aid relief for Syria. In its 6 February editorial, The Guardian remarks that “supplying aid is likely to be diplomatically and logistically challenging.”

According to aid organizations, only one official border crossing from Türkiye to Syria is operational, and access has been blocked by debris from the earthquake. The first UN convoy of aid arrived after four days. “Syrians have already endured more than a decade of conflict, and they are now faced with the tragedy of this earthquake,” said Dr. Abdulkarim Ekzayez, a Syrian doctor and health system expert.

Rebuilding efforts will be even more complicated.

The road to recovery

With the rescue operations ending, attention is shifting to the millions without homes or functioning cities. The focus has turned toward shelter, reconstruction work, rehabilitation, and recovery. As of writing, authorities continue to carry out damage assessments in the worst-affected areas. Damage to economic infrastructure, including livelihoods, will also be assessed.

The task ahead is not only to reconstruct homes but also to rebuild lives. Humanitarian partners will need to:

  • Support development and reconstruction,
  • Restore livelihoods, community infrastructure, and basic social services, and
  • Transition to longer-term recovery and rebuilding.

Restoring livelihoods and reviving small businesses

Small businesses are well-positioned to support urgent needs. They can be critical to long-term recovery, including rebuilding infrastructure, getting people back to work, and ensuring communities live healthy lives.

Providing rapid access to income and restoring livelihood infrastructure are keys to jumpstarting socioeconomic recovery.

Building Markets says small and mid-sized enterprises (SMEs) face significant challenges. Nearly 17% of SMEs report being unable to continue business operations. 40 to 55% require funding for employee salaries, inventory, repairs, and new workspaces.

How Birches Group can help

Natural disasters such as the Türkiye-Syria earthquakes occur without warning, and their impact is catastrophic. They also have a devastating effect on businesses. In the wake of a calamity, organizations must take special measures to ensure the safety and well-being of their staff. Your organization’s approach should differ from how you would respond to economic volatility.

We at Birches Group can help your organization prepare for unexpected events by creating a Special Measures Policy. Natural disasters require a different response approach, and we understand the challenges such emergencies pose.

Get our March Market Monitor reports

We offer valuable resources like our Market Monitor reports, highlighting specific labor markets that need closer monitoring. Subscribe today to download our March Market Monitor reports, where we focus on Türkiye and Syria and help guide organizations in developing their Special Measures Policy.

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Businesses Live with Dollarization in Lebanon

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on what is happening in labor markets that are making headlines around the world, bringing you up to date on the news

Experiencing a financial and economic collapse that the World Bank ranks among the world’s worst since the 1850s has led to dollarization in Lebanon.

The country’s currency, the Lebanese Pound (LBP), has lost over 90% of its value since the crisis erupted in 2019. International Crisis Group reports that the plummeting LBP has caused havoc across the Lebanese economy. Salaries have melted in value. Hyperinflation has reached triple digits, immensely reducing purchasing power. According to the United Nations (UN), over 80% of the population lives in sudden, multidimensional poverty.

A highly volatile and dollarized market

Birches Group first observed signs of volatility in Lebanon in November 2022, when the country was listed in the Market Monitor report at Level 4 (of six). In mid-December, Lebanon’s level of volatility escalated to Level 5, indicating a wide prevailing practice to denominate salaries in United States Dollars (USD). (It should be noted that the significant exchange rate movement we have been seeing in Lebanon is most likely caused by the UN switching its source of exchange rates to one that better reflects local conditions.)

The LBP’s plunge has led to a de facto dollarization of the economy, says Arabian Gulf Business Insight. Some observers and economists believe dollarization would be a solution to the crisis and a way to secure monetary stability.

Dollarization explained

Dollarization is the process of replacing the domestic currency with a foreign one to serve the essential roles of money in the economy. This occurs when a country’s currency loses its usefulness as a medium of exchange due to hyperinflation or instability.

Businesses begin to dollarize

The decline in the LBP’s value has led to businesses pricing their items in USD, where customers pay the local currency based on the daily parallel market rate. In March 2023, shops and supermarkets began to price their products in USD. Other businesses have started charging for their goods and services—including rent, household items, clothing, gas, health insurance, and medical care in USD. Outside the public sector, employees are fully or partially paid in USD.

Why are organizations in Lebanon dollarizing?

Trust and confidence in the LBP have waned over the past three years due to many factors and recent events.

Currency devaluation. Since 1997, Banque Du Liban (Lebanon’s central bank) has set the exchange rate at 1,507.50 LBP to 1 USD. The rate remained unchanged for 25 years.

In February 2022, Banque De Liban revalued the official exchange rate to 15,000 LBP to 1 USD—a 90% devaluation from the longtime peg. Officials say the measure is a step towards stabilizing the LBP and eliminating the many exchange rates that have emerged in recent years. But the official exchange rate is well below the rate on the street, says Al-Monitor. According to parallel market rates on LiraRate.org, the LBP trades at 79,000 to 1 USD as of 6 March 2023.

ECA International foresees more devaluations of the official rate in months to come.

Presidential vacuum. Political paralysis has made matters worse for Lebanon. Since the end of October 2022, the country has been without a president. Its deeply divided Parliament has yet to elect a new head of state. This deadlock is unsustainable and paralyzes the government at all levels, says the International Support Group for Lebanon (ISG).

With only a caretaker government and limited authority, an economic plan with reforms required by the International Monetary Fund (IMF) has yet to be devised. The ISG has urged leaders to immediately harmonize exchange and adopt the laws needed to restore investor confidence. Unifying exchange rates, including the parallel market rate used for most goods and services, is a precondition the IMF has set to secure a US$3-billion aid package.

Central bank governor under investigation. European investigators are currently probing the alleged state fraud and actions of Banque Du Liban governor Riad Salameh, who has held the post for three decades. Salameh is suspected of financial misconduct, including money laundering and embezzlement. In March 2023, Lebanese prosecutors charged Salameh, his brother, and an associate with forgery, illicit enrichment, and tax law violations.

How Birches Group can guide your organization

It’s not wrong to dollarize, but denominating salaries in US dollars requires careful thought. Remember that returning to the local currency is difficult once you’ve dollarized. Carefully consider how this process will affect your pay practices and staff.

Is your organization in Lebanon considering paying staff in US dollars? Get guidance on making such a big switch. Contact us today to learn how we can help you develop a Special Measures Policy that includes dollarization.

References:

Egypt Inflation

Egypt’s Surging Inflation: What is Happening and How Employers Can Prepare

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on the current state of labor markets that are making headlines around the world, bringing you up to date on the news.

Egypt, Africa’s third-largest economy, has been battling inflation for almost a year. Supply chain issues and tight financial conditions have also made Egypt vulnerable to external shocks.

Egypt’s inflation rose to 26.5% in January 2023, up from 21.9% in the previous month and 8% in January 2022. Steve Hanke, an economist at Johns Hopkins University, estimates the actual inflation rate to be 101%.

A currency crunch

The crisis began in February 2022 with Russia’s invasion of Ukraine. The conflict has severely affected Egypt’s economy. The country saw food and energy prices soar. Its tourism industry, which relies on Russian and Ukrainian visitors, further declined. Foreign investors also pulled out over US$20 billion in investments. The Egyptian government responded to the flight of capital by restricting imports. Inflation, which was at 8% the month before, entered the double digits zone at 10%.

With dwindling foreign currency reserves and teetering on the brink of an economic collapse, Egyptian authorities turned to the International Monetary Fund (IMF) for aid in March 2022.

A new IMF loan

After several months of meetings and negotiations, Egypt and the IMF reached a staff-level agreement in October 2022. (The loan agreement was approved by the IMF’s Executive Board in December 2022 but only publicly published in January 2023.) The IMF would provide a support package totaling US$ 3 billion in exchange for implementing several economic reforms, including:

  • Liberalizing the exchange rate,
  • Raising interest rates by 2%, and
  • Scaling back the economic role of the state and military.

The support package would be gradually given to Egypt within four years, subject to periodic reviews. The IMF loan is also expected to catalyze another $14 billion in funding from international and regional partners.

The shift to a flexible exchange rate

One of the IMF’s conditions for its latest loan was to liberalize the exchange rate. With a permanent shift to a flexible exchange rate, the Egyptian pound’s value would be determined by forces of supply and demand rather than set by the central bank.

To comply with the IMF’s terms, the Central Bank of Egypt (CBE) announced in October 2022 the shift to a flexible exchange rate. The CBE has since been devaluing the Egyptian pound in phases. Since the end of January 2023, it has been trading at above EGP 30. The Egyptian pound lost over half of its value in less than a year.

As a result, the depreciating pound has been fueling inflation and adding to the woes of Egypt’s 106-million population.

An economic crisis

Egypt’s fiscal measures have strained its citizens, especially the poor and middle class.

Egyptians are feeling the pinch. Many imported products are unavailable, and food staples have doubled in price. Tens of millions of people cannot afford basic staples, limiting their spending. Families have been cutting back on meat, medicine, and clothing.

Citizens are complaining about their income shrinking. More middle-class Egyptians have turned to charities for support.

In an opinion piece for Middle East Eye, former investment minister Yehia Hamed cites that nearly 70% of Egyptians believe the government is “doing too little to meet people’s need for an acceptable standard of living.”

How is the government responding

According to the World Bank, the government announced various measures to help alleviate the impact of higher prices on the vulnerable. These measures include revising the minimum wage, delaying adjustments to electricity prices, and extending existing food subsidies and cash transfers. The government has also opened outlets where food is sold at lower prices.

But conditions are still problematic. Poverty is elevated in Egypt: roughly 1 in 3 Egyptians live below the poverty line, according to official figures as of 2020.

What analysts say

The immediate outlook for the Egyptian pound is more challenging, says S&P Global. Experts predict that, over the next 3 to 12 months, the Egyptian pound will trade at 32 to 35 pounds against the dollar.

Analysts also predict that inflation will continue to rise in the short term. The World Bank (WB) forecasts Egypt’s inflation to remain double-digit until the fiscal year ends in June 2023. WB also notes that economic activity and real incomes are expected to be adversely impacted.

What our Market Monitor indicates

Egypt has been on our Market Monitor report since its first publication in mid-June 2022. From mid-July to September, the North African country was at Level Two for two months. Level Two reflects dynamic market conditions where there has been a movement of over 20% in the exchange rate in the past year.

In October, Egypt was dropped from our list of volatile labor markets as the movement in the local exchange rate fell below 10%. Nonetheless, we continued to examine the Egyptian Pound’s exchange rate movement against the US Dollar. Egypt reentered the list in November and remained at Level Two until early January 2023.

In mid-January 2023, Egypt’s level of volatility jumped from Level Two to Level Four. As of the time of writing, Egypt’s exchange rate movement for the past six months is 59.2%, showing sudden and rapidly evolving conditions.

How Birches Group can help

Employers in Egypt should keep a close eye on the local situation, as rapid economic events can drastically impact business continuity.

As inflation rises, organizations must respond proactively to the emerging crisis. In the 15 February edition of our Market Monitor report, we highlight Egypt as a case study of what organizations can do in a turbulent market. Join our mailing list today to learn about our recommendations for special measures in Egypt and other volatile labor markets.

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Philippe Francey Joins Birches Group as Senior Advisor

Written by Bianca Valencia on . Posted in Uncategorized.

March 2023

Birches Group is pleased to announce that Mr. Philippe Francey has joined Birches Group as a Senior Advisor as of 1 March 2023, based in Geneva, Switzerland.

In this newly created role, Philippe will bring unique insights into the evolution and development of Birches Group’s products and services. Initially, Philippe will work closely with international NGOs and other development sector employers headquartered in Europe to strengthen and reinforce our client relationships within the international development sector and expand the awareness of the Birches Group Community™ platform for integrated HR Management.

Philippe will also participate in selected client projects and help introduce the application of Birches Group Community Skills as a diagnostic tool to assist organizations in the identification of inequities in their pay systems and provide practical solutions to remedy these inequities.

“We are delighted to have Philippe on board as a Senior Advisor. He is a true expert in his field and brings a wealth of knowledge and insight to Birches Group. I know our clients will benefit from his experience and advice.” – said Warren Heaps, Birches Group Partner

“Building on my experience in several economic sectors and 8 years leading the Compensation and Benefits function in a leading global humanitarian organization, I am looking forward to joining Birches Group, it will be exciting to contribute to the evolution of Birches products, while fostering effective partnerships with the Birches customer communities.” – said Philippe Francey, Birches Group Senior Advisor

About Philippe

Philippe began his professional career over 30 years ago, with stints at the Swiss Ministry of Foreign Affairs, Union Bank of Switzerland, Nokia, Agie Charmilles (Georg Fisher Group), Reuters and Thomson Reuters.  Most recently, he served as the Head of Compensation and Benefits for the International Committee of the Red Cross (ICRC) in Geneva.  During his career, he has worked in Switzerland, Finland, Brazil, the United Kingdom, and the United States.

In his last position at the ICRC, Philippe experienced Birches Group’s products and services as a customer. His insights as a technical expert and former client will be invaluable to the growth of Birches Group.

Philippe holds a B.S. degree in Politics and a post-graduate diploma in Statistics and Computer Science from the University of Geneva.

For more information

To learn more about Birches Group’s collaboration with Philippe and his work with our European clients, you can email him at Philippe.Francey@birchesgroup.com or reach out to anyone from our Business Development team.

Download a copy of this press release

Crisis in Syria

A Closer Look at the Economic Crisis in Syria

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide and wants to share news and updates on the conditions in these markets.

Now approaching its 12th year, the conflict in Syria is one of the most complex geopolitical and humanitarian emergencies of our time. The International Crisis Group describes the situation as a “constellation of overlapping crises” with years of ongoing hostility.

What began as part of the Arab Spring uprisings has developed into an unending civil war involving world powers. Today, the Syrian Arab Republic faces massive economic hardships and limited political progress. 15.3 million Syrians—almost 70% of the population—need humanitarian aid, says the United Nations Office for the Coordination of Humanitarian Affairs (UN OCHA).

A matter of strength and survival

Over a decade of conflict has had disastrous effects on the local economy. 90% of Syrians live below the poverty line, and unemployment among the youth has reached 60%, the UN Development Programme reports.

The socioeconomic impact of the conflict in Syria is growing and ever-deepening. Conditions are deteriorating, and life is more challenging than ever. Syrians are dealing with a multitude of shocks, especially the following:

The Syrian pound depreciates. The Syrian pound’s unprecedented weakness is one of many indicators of a worsening economy. The Syrian pound has lost almost 75% of its value against the United States (US) dollar throughout 2022. The Central Bank reduced the official exchange rate for the second time in four months from 3,015 to 4,522 Syrian pounds for one US dollar. The rate in the parallel market, which is used for most local economic activity, is much higher at around 6,500 Syrian pounds.

Basic commodity prices skyrocket. The depreciation of the Syrian pound has led to rampant inflation, eroding real wages. According to Euro-Med Monitor, necessities are unaffordable, with prices increasing eightfold in the past two years. The Syrian regime has also led an austerity campaign, pulling subsidies for essential goods and services. And yet the income of most families has not increased.

A fuel and electricity crisis hits Syria. A longstanding agreement with Iran has faltered as shipments have stalled. The Wall Street Journal reports that Iran has restricted its monthly oil supply to Syria due to price increases and high demand in winter. This recent development has crippling effects. Since December, a severe fuel crisis has affected almost every sector in Syria. Three-quarters of Syrian households have less than eight hours of electricity every day. The power outages have driven many to rely on candles to light their homes. People burn shoes, clothes, trash, tires, and even pistachio shells for heat. The government has cut its work week to four days to save on energy costs, and working overtime has been banned.

Syria’s economy may have hit its lowest point since the start of the civil war in March 2011. Associated Press reports that, since wages don’t come close to meeting the cost of living, most Syrians live on remittances, multiple jobs, and humanitarian aid. The Center for Disaster Philanthropy also notes that the situation has forced people into survival strategies, such as eating less and selling fuel aid to buy food.

Without a political solution to the conflict, the economic crisis in Syria is expected to continue, and analysts expect hyperinflation to begin this 2023. The situation is still bleak as the country goes deeper into the crisis.

What our Market Monitor shows

Since we first published the Market Monitor report in mid-June 2022, Syria has been on Level One in the first five months of our monitoring. Level One reflects standard market conditions, with a 0 to 20% movement in the local exchange rate over the past 12 months.

But in our November and December 2022 reports, Syria was excluded from our list of volatile markets. During this time, the movement in the local exchange rate fell below 10%. By early January 2023, the exchange rate had not significantly moved in the last two months.

Syria reentered our list at Level Four in our latest (mid-January 2023) report. This abrupt level increase shows a sudden and unexpected socioeconomic event and a local currency devaluation of 50% or more in the past six months.

How Birches Group can help

Policies and procedures for keeping pay programs functioning in markets like Syria are critical. Develop a Special Measures Policy with triggers and immediate responses for supporting staff. Also, decide how your organization plans to carry out its next steps. Employees need to know they can rely on their employer to help them during times of crisis.

Birches Group can help your organization design responses to recent developments in Syria. We are experts in developing Special Measures Policies for organizations across sectors, including nonprofits and leading multinational companies. Get in touch with our consultants today to learn how we can create a Special Measures Policy for you.

References:

Iran’s Countrywide Protests and What They Mean for Employers

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide and wants to share news and updates on the conditions in these markets.

“Blood that is spilled unfairly will boil until the end of time,” goes an old Persian saying. For nine weeks, the streets of Iran have been shaken by protests calling for the overthrow of the religious theocracy that has ruled for over 40 years. Iran’s countrywide protests began on September 16, when 22-year-old Mahsa Amini died in police custody. Amini was detained in Tehran for allegedly not observing the country’s dress code for women and collapsed into a coma at a police station. A photo and video of Amini in the hospital were shared online and quickly went viral.

Iran has a long history of demonstrations and unrest. But the events since mid-September are different. They are led by women and young girls with no organizing force or leadership. They are spontaneous, persistent, widespread, and supported by people from different layers of society. Students and older Iranians, merchants and labor unions, and the middle and working classes have taken to university campuses and onto the streets of over 100 villages, towns, and cities across the country. Iranian expatriates have also rallied in support in Berlin, Washington DC, and Los Angeles.

And despite violent clashes with security forces, more than 14,000 arrests, and mobile and internet restrictions, dissent rages on with remarkable defiance.

The protests and the economy

The demonstrations across Iran now go far beyond Amini’s death and women’s rights. They have moved from demands for reform to demands for systemic changes, an expert told NBC News.

The protests have quickly swelled in response to the Islamic republic’s economic stagnation. The BBC says that, on average, Iranian families are “quite a lot poorer than they were 15 years ago.” Iran’s middle class has shrunk dramatically since 2018, with a third of its population falling into poverty. 23% of the youth population is unemployed, according to the Financial Times.

Additionally, Iran is facing a record inflation of 42.9%. Its currency, the Rial, has sunk to all-time lows. Since August, the Iran Rial has lost more than 20% of its value against the United States (US) dollar.

Businesses, shop owners, and bazaar traders in several cities closed their stores and went on strike, joining the protests in solidarity, Bloomberg and Iran Wire report. According to a primer from the United States Institute of Peace, factory workers in the energy and petrochemical industries also went on strike.

The Iran Chamber of Commerce warns that every hour of internet restrictions due to the protests costs US$1.5 million in damages to the Iranian economy. Research from the Tehran Computer Trade Union Organization states that 47% of internet businesses have lost more than 50% of their income. If the internet disruptions continue, 73% of businesses with less than 50 employees will lose over US$1,100 daily.

The government is considering a 20% pay raise for state workers. Still, the Rial’s sharp fall has eaten away at any benefit for workers, says London-based Iranian news website Iran International.

How we can help

Policies and procedures for keeping pay programs functioning in highly volatile markets such as Iran are critical. Organizations must develop a Special Measures Policy to determine the triggers and equivalent measures to support staff and ensure business continuity during political unrest. In addition, decide how your organization plans to implement the next steps for your staff. Employees need to know they can rely on their employer to help them during times of uncertainty.

We at Birches Group have extensive expertise in developing Special Measures Policies for organizations across different markets and sectors. Speak with our consultants today to find out how we can create one for you.

References:

Turkiye's Hyperinflation

Turkey’s Hyperinflation and How Employers Are Weathering the Crisis

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines around the world and wants to share news and updates on the conditions in these markets.

Turkey, a Eurasian hub of 84 million people, is weathering an unprecedented economic and monetary crisis. Inflation is a major issue, with rising prices chipping away at purchasing power every week.

The Turkish Statistical Institute reported that Turkey’s annual inflation rate reached 83.45% in September, the highest in 24 years. Independent economists from ENAGrup believe the actual figure is 186.27%.

Inflation has been soaring in Turkey for 16 months, yet Bloomberg reports that price growth in the transcontinental country has been in the double digits since early 2017.

The country has suffered debt and currency calamities in the last few years, says The Wall Street Journal, but the current crisis is different. According to a report from Capital.com, aggressive interest rate cuts, high energy and commodity prices, heavy dependence on imports, and a depreciating Turkish Lira have contributed to surging inflation rates.

A paper from the Middle East Institute states that Turks have been driven to protect their savings by changing Lira deposits into gold and foreign currencies such as the Euro and United States (US) dollar. The tendency to keep savings under the pillow is also an ongoing trend.

What the government is doing

The Turkish government has taken several measures to protect households from high inflation. These mechanisms include:

  • Protecting Lira-denominated bank deposits
  • Raising the minimum wage by 50% in January and by 30% in July
  • Giving social transfers to poor households
  • Placing a 25% cap on rent increases
  • Reducing taxes on utility bills and introducing fuel and energy subsidies
  • Slashing value-added taxes on specific goods

But the measures have had little impact on the lives of Turks.

What the employers are doing

As their purchasing power shrinks and their job security erodes, many Turks are falling out of the middle class, says The Economist.

People are getting upset as they see their living standards falling. Businesses have been affected by the Lira’s fall in value, while people’s wages have been depleted because they can now buy less with their money. The price surge has upturned household and company budgets, and many are scrambling to cut costs. Over two-thirds of Turks are struggling to pay for food and cover their rent, according to a survey by the Yoneylem Social Research Center.

As a result, workers are negotiating higher salaries, and employers are taking proactive steps. Here are a few examples of what employers in Turkey are doing in response to mounting inflation:

  • Implementing across the board salary increases of between 15% to 30%
  • Improving allowances for items such as meals and transportation
  • added cash incentives or bonuses

Beginning summer last year, Mustafa Tonguc, the chief executive of DHL Express in Turkey, compiled a list of the cost of 50 essential products and compared them with their German equivalents to persuade bosses at headquarters to raise the wages of over 1,000 staff. According to the Financial Times (FT), Tonguc would raise wages three more times in the year ahead. “We as a business can’t fix the global economy, but we can take care as much as we can of our people,” Tonguc told FT. “In the last 12 months, many companies went bankrupt. We felt people should be assured of their job security,” he added.

How we can help

Policies and procedures for keeping pay programs functioning in highly volatile countries like Turkey are vital. A Special Measures Policy should be set up to determine the triggers and equivalent measures to support staff and ensure business continuity during volatile periods. In addition, organizations must decide how they plan to implement the next steps for their staff. Employees need to know that they can rely on their employer to help them during times of crisis.

We at Birches Group have extensive expertise in developing Special Measures Policies for organizations across different markets and sectors. Speak with our consultants today to find out how we can create one for you.

References:

Strategy in Sub-Saharan Africa

Vital Partners, Shared Priorities: The US Strategy Towards Sub-Saharan Africa

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide and wants to share news and updates on the current conditions in these markets.

The White House released in August 2022 the US strategy toward Sub-Saharan Africa (SSA). Its renewed policy supports four main objectives, including advancing pandemic recovery and economic opportunity.

A priority and opportunity

SSA is of growing importance on the world stage. Comprising 49 countries, the region is a geopolitical priority and an emerging economic opportunity. SSA countries hold roughly 25% of United Nations General Assembly seats. Moreover, the region is integrating into the world’s largest free trade area.

The US Department of Commerce’s International Trade Administration describes SSA as presenting real opportunity, with indicators such as:

  • A combined market population of over 1.2 billion people (that is expected to double by 2050),
  • A gross domestic product of more than US$1.5 trillion, and
  • Home to some of the fastest-growing economies in the world.

The World Bank reports that economic activity in the area is set to expand by 3.6% in 2022, 3.9% in 2023, and 4.2% in 2024. Additionally, its young population makes SSA an attractive investment destination. Massive demographic shifts in this part of the world provide tremendous opportunities to create jobs, boost incomes, and reduce poverty, especially in a global environment of slowing growth.

China and its growing influence in the region

The world is well aware of Africa’s importance, encouraging countries to expand their political, economic, and security engagement with African states. In the past 20 years, new actors, such as China, have been shifting dynamics across SSA. And Chinese influence in the region is real and significant.

In 2001, China received less than 3% of the region’s exports, compared to nearly 19% for the US. In 2009, China overtook the US as SSA’s largest trading partner. Almost 20 years later, China has emerged as the region’s single greatest export partner, holding an 11% share of exports in 2019, while the US share dropped to 5%. China’s Belt and Road Initiative has invested in SSA through transportation, power, water supply, and other infrastructure projects. China has also provided loans, investments, and aid.

The US reframes its Sub-Saharan Africa partnership

The US is responding to growing foreign activity and influence in SSA and is engaging a region undergoing significant transformation. “It would be a strategic mistake for the US to abandon its engagement with SSA altogether—especially as US adversaries and competitors are relentlessly increasing their investment in the region…” said Daniel Runde, Director of the Project on Prosperity and Development, and Sundar Ramanujam, Research Associate of the Project on Prosperity and Development at the Center for Strategic & International Studies (CSIS).

Biden’s policy differs from those of previous administrations because it focuses on overhauling its relationship with SSA from donor-recipient to genuine partnership. “Biden’s team extols Africa’s strengths and is proposing US-Africa partnerships on a range of issues,” said Mark Bellamy, Senior Advisor of the Africa Program at CSIS.

Further, Devex reports that the strategy has generally been well-received and is seen as sending a strong message about US engagement in the region. “It’s a strategy that reflects the region’s complexity—its diversity, its power, and its influence—and one that focuses on what we will do with African nations and peoples, not for African nations and peoples,” said US Secretary of State Antony Blinken as he announced the strategy.

It’s also an effort to make regional engagement authentic and not just a battleground to compete with China and Russia. “Too often, African nations have been treated as instruments of other nations’ progress rather than the authors of their own,” added Blinken in his announcement.

Why this matters to employers

With the intent of the US to reestablish ties and reinvest in SSA, employers with a presence in the region can anticipate a significant shift in the labor market in years to come. Monitoring the labor market as early as possible is critical for your organization to seize economic opportunities and remain competitive. Keeping an eye on market shifts enables your organization to plan and make informed decisions about hiring, pay management, employee benefits, and more.

How we can help

We at Birches Group survey leading employers in over 150 countries with a consistent methodology designed for dynamic, emerging markets across SSA. We survey labor markets of varying sizes, focusing on employers that set trends. Get updated and relevant data on every country in SSA. Speak with our consultants today to understand our data and how you can use it for your organization.

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Zambia’s Debt Crisis: What You Should Know

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide, and wants to share news and updates on the current conditions in these markets. 

Defaulting on debt

In November 2020, Zambia became the first African nation to default on its Eurobonds during the COVID-19 pandemic, bringing the country’s debt distress into headlines around the world. The debt crisis resulted from “years of economic mismanagement,” the International Monetary Fund said. Drought in 2019 and COVID-19 in 2020 worsened Zambia’s economic challenges.  

A precarious macroeconomic situation 

But the Zambian economy was witnessing “a weak macroeconomic condition” even before the COVID-19 outbreak, the United Nations Conference on Trade and Development said. Growth was sharply declining. Zambia was facing severe challenges such as high inflation, unsustainable debt levels, low international reserves, and tight liquidity conditions, according to the economic outlook of the African Development Bank (AfDB). 

Over the past five years, Zambia’s economic growth slightly accelerated in 2017 and 2018, slowed in 2019, declined to a negative in 2020, and resumed in 2021, as reported by the 2022 Index of Economic Freedom. In 2018, Zambia’s Gross Domestic Product (GDP) was estimated at US$ 26.31 billion, with an annual growth rate of 4 percent. But an “expansionary fiscal policy mainly financed by external and local borrowing” caused Zambia’s debt to hit 91.6% of its GDP in 2019 and 104% in 2020.  

Inflation nearly doubled, and the Zambian kwacha quickly depreciated by 64%. When COVID-19 hit Zambia being in this situation, the country’s precarious macroeconomic position took a turn for the worse. The Zambian economy fell into a deep recession, the AfDB said. More inflation, currency depreciation, and a significant debt burden forced Zambia to default on its debt obligation and seek more relief from lenders. 

A new dawn for Zambia 

In August 2021, Zambia’s trajectory significantly shifted with the election of a new government led by longtime opposition leader Hakainde Hichilema. As Zambia’s seventh president, Hichilema inherited a nation with unsustainable debt larger than previously known and had to deal with the impact of its debt default.  

According to Deloitte, debt restructuring, talks with the International Monetary Fund (IMF), and a more stable exchange rate, among other measures, would be “fundamental to Zambia achieving macroeconomic stability.” Hichilema outlined an ambitious agenda to address structural weaknesses through macroeconomic reforms guided by an IMF program. 

Engaging the IMF 

“Zambia is in debt distress and needs a deep and comprehensive debt treatment to place public debt on a sustainable path,” the IMF said. The government began to actively seek a comprehensive debt restructuring. Specifically, it initiated a creditor engagement strategy to secure immediate debt service relief and better terms, the AfDB said. 

On December 6, 2021, the government of Zambia announced it had reached a staff-level agreement on a US$1.4-billion extended credit facility with the IMF from 2022 to 2025. On September 6, 2022, the IMF’s Executive Board approved a 38-month credit facility amounting to US$1.3 billion to “restore economic stability and foster higher, more resilient, and more inclusive growth.” 

These recent events marked a significant milestone and set the path for negotiations with Zambia’s lenders to restructure the country’s external debt.  

Focusing on economic recovery 

The country’s economic outlook has markedly improved, given renewed optimism and increased investor confidence post-elections. Additionally, the newly elected government has made several important policy announcements, including an enhanced focus on rebuilding the economy and creating an enabling business environment to foster growth. 

Zambia’s growth in the coming years is to be likely driven by “a clear path to debt sustainability, leveraging the country’s mining potential, increased private sector participation, focus on job creation, and good governance,” said Deloitte & Touche (Zambia) Managing Partner Humphrey Mulenga in Doing Business in Zambia. Economic activity will gradually pick up, with the World Bank estimating growth at an average of 3.8% from 2022 to 2025. While the market sentiment has markedly improved, the Zambian economy remains fragile, the IMF said in a September 2022 report. 

How we can help 

We at Birches Group survey leaders in over 150 countries with a consistent methodology designed for dynamic, emerging markets such as Zambia. We survey labor markets of varying sizes, focusing on employers that set market trends. Our survey data empowers organizations to monitor and benchmark positions in local markets and create salary structures tailored to each country’s requirements while conforming to global standards. 

Speak with our consultants today to access up-to-date labor market data and understand how to use it for your organization. 

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The Zimbabwe Labor Market: A Fragile Economy 

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group has been keeping track of the volatile economic conditions in Zimbabwe and wants to share updates on the current labor market conditions there.  

Waning trust in local currency 

Al Jazeera reports that Zimbabwean authorities are struggling to pull the Southeast African nation from the grip of a severe economic crisis characterized by a rapidly devaluing local currency. Trust in the Zimbabwean dollar (Zimdollar) has been low after people saw their savings depleted by hyperinflation in 2008. Our July 2022 salary survey of the Zimbabwe labor market notes that the economy had dollarized between 2009 and 2019. 

Although the Zimdollar was reintroduced in February 2019, it continues to be sidelined in favor of the United States dollar (USD). Businesses and individuals see the USD as more acceptable overseas and better at holding long-term value. Because the Zimdollar became untradeable outside the country, employers were required to start paying salaries in USD.  

Local media outlets such as NewsDay have confirmed that demand for USD salaries has increased across economic sectors. In an opinion piece for New Zimbabwe, African affairs expert Teresa Nogueira Pinto writes, “There are now increasing fears that the country will experience another hyperinflation crisis as in 2008.”  

An exceptional situation 

Our Market Monitor categorizes labor market conditions according to six levels of volatility. Since mid-July, Zimbabwe has been classified as Level Five, indicating a prevailing practice to denominate salaries in USD or Euros. In our most recent salary surveys of the country, we have further noted that employer participants across sectors (including the NGO sector) now denominate and pay salaries in USD. This includes cash and in-kind benefits. 

However, our latest surveys indicate little to no market movement since February. We have not observed any activity in our multi-sector salary survey. But as of July 2022, we have seen minimal movement in our NGO salary survey: pay rates for support-level staff increased by 1.9% and at the professional or managerial level by 0.2%. Nevertheless, inflation has continued to soar in the triple digits since May. The Reserve Bank of Zimbabwe, the country’s central bank, reported an annual inflation rate of 256.9% in July from 191.6% in June. 

Next steps for employers 

It is vital to have policies and procedures to keep pay programs functioning and maintain business continuity in countries like Zimbabwe, where the labor market is unstable. A Special Measures Policy should be established to determine the triggers for updating salaries and benefits. In addition, organizations must decide how they plan to implement the next steps for their staff. Employees need to know that they can rely on their employer to assist them during times of crisis.

How we can help 

We at Birches Group have extensive expertise in developing Special Measures Policies for organizations across different markets and sectors. Contact us today to find out how we can create one for you. 

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