Wednesday, 25 May 2022

In Business

Vendors & Cross Borders: Zimbabwe must Formalise Informal Businesses for Economic Growth

An informal business sector is that sector which uses capital and unskilled labour in production and produces non traded consumption goods whereas a formal sector utilizes skilled and unskilled labour in production and produces a traded good which is both an investment and consumption good.

Zimbabwe is one of those countries in Africa with the best education but it is one of the poorest and the economists have realised the issue being the informal sector. The informal sector is believed to be the bread winner for Zimbabwe. It is now an informal economy since the collapse of the thriving manufacturing and agriculture sectors. 

Unemployment rate is over 80% so the only option left is the informal sector. Most rich people in Zimbabwe come from the informal sector because that’s where hope is.

In 2016 the World Bank did a survey on the Zimbabwe informal business sector and their agenda was to understand the demographics of the informal sector in Harare and to describe the environment which the business operates. Their secondary objective was to provide the estimate of number of informal businesses operating in Harare and their findings were that informal sector was larger than the formal sector. Hence the need for Zimbabwe t formalise the informal sector.

The informal sector is believed to be the country’s largest employer as the economy worsens but lack of co-ordination and assistance from the government and other stakeholder is hindering small entrepreneurs from attaining full potential.

Esinath Ndiweni and Helen Verhoeven argues that “for the past 30 years informal economic activities have proliferated at an unprecedented rate as a response to socio-economic challenges and thus became a difficult position for many to escape poverty.” They also agreed that unlike in western societies were the formal economy plays a big role, in most developing countries like Zimbabwe it still plays a limited role and is confined in cities and towns yet the bulk of the population lives in the rural areas and depends solely on the informal economy.

According to Scheinder and Enste [2000] the informal sector is the largest employer and plays important role in many countries contributing approximately over 75% of GDP in Nigeria and 10% in the USA. The size of the informal economy in Zimbabwe was 59, 4% in 2004 and has been increasing since then. This shows how much Zimbabwean government should formalise the informal sector.

Zimbabwean high schools turned out more than 300,000 school leavers who cannot be absorbed into the formal economy. This group of youngsters goes into the informal entrepreneurship and they are creative using their talents to produce artefacts which can be sold to earn a living. The Zimbabwean government needs to understand that not everyone needs to go to school to earn a living some talents only needs nurturing hence the need to formalise the informal business sector because not every soccer player went to school to learn to play football.

A study by the Confederation of Zimbabwean industries, they found out that in November 2000 at least 1, 7 million people were earning their living in the informal sector. Sometimes the informal sector acts as a buffer for cyclical trends in the formal sector by providing a dumping ground for retrenched labour and a wating station for job seekers which they never get in the end, Godfrey Kayenze told the financial gazette.

But while other stakeholders and the government in the economic sector have realised the importance of the informal sector, there is still very little assistance for the small entrepreneurs and some are operating at below capacity because of lack of funding.

Most unemployed people in Zimbabwe are cooks in canteens, builders, cobblers, barber men, welders, vendors and hairdressers. Some of these people did not just wake up knowing those professions but rather they went to reputable institutions but the country cannot afford to employ everyone hence they turn to the informal sector, but it’s called the “informal sector” as if what they do is illegal as the term informal is associated with illicit and illegal activities. 

Research has noted that employment in informal sector is called “informal employment” whereas in the formal sector it’s called “casual labour” but the informal sector feeds the economy of Zimbabwe.

The informal activities such as construction, tailoring, vendors, agriculture and retail all offers inclusive opportunities that come with supplement income that provide livelihoods to families. Their operating environment lack adequate facilities compounded by vitality that makes the business vulnerable and susceptible to liquidation and closures just like what happened during covid-19 lockdown mostly the informal sector was shutdown first, they are targets of harassment by the authorities.

According to the findings of the International Monetary Fund, despite the informal sector contributions to livelihoods and the economy at large poverty levels are twice as high in the people employed in the informal sector than those in the formal sector. This is due to low productivity, low income and limited access to government benefits.

It has been a pre-occupation of most governments to measure the economic activities of the informal sector to have access to state incentives and benefits that may contribute to their growth.

Zimbabwe should have the informal sectors registered as the ILO recommended policy makers to relax entry barriers for these informal sectors through lowering business registration fees and adjusting tax thresholds.

It is believed that most people enter the informal economy by necessity rather by choice in order to access to basic income generating activities as a means of survival.

Zimbabwe should take part in formalising its informal business sector for economic growth just like what other African countries are doing.

Sources: Schneider, F. and Enste, D., GDR, All Africa