eBusiness Weekly
Note from ZNCC
An informal economy (informal sector or shadow economy) is the part of any economy that is neither taxed nor monitored by any form of Government.
Although the genesis and significant rise in informality in Zimbabwe dates back to 1991 when the country adopted and implemented the Economic Structural Adjustment Programme (ESAP), the informal economy has been on the rise, and the fast-track land reform programme of 2000 which triggered the closure of some foreign-owned enterprises across sectors added to the growth of informality over the years.
The informal sector in Zimbabwe is indeed a “pool” of entrepreneurial talent that can be harnessed to fuel economic growth. The Covid-19 pandemic has seen a rise in the informal sector as people have struggled to eke out a living. The table presents some stylised facts about Zimbabwe’s informal economy.
Stylised facts about Zimbabwe’s informal economy
During the 2023 Zimbabwe National Chamber of Commerce Survey, several reasons were enumerated by respondents as some of the major causes of the informality in Zimbabwe.
The following are some of the major reasons:
i. Rural-to-urban (internal) migration: First, the issue of rural-to-urban (internal) migration is where citizens, due to lack or limited livelihood opportunities in rural areas think that towns and cities are likely to offer better opportunities, resulting in them migrating to urban areas.
The limited opportunities in urban areas cause the migrants to resort to informal activities, among others, as some of their survival strategies.
ii. High level of formal unemployment: The country continues to have high levels of formal employment with some sources indicating rates of above 80 percent. Whatever the unemployment rate figure one can us, the fact remains that unemployment is very high in Zimbabwe.
Due to this high unemployment rate, most able-bodied people end up resorting to various economic activities in the informal sector for their survival.
iii. Adoption of Economic Structural Adjustment Programme (ESAP): Zimbabwe’s economy was liberalised during the 1990s through structural adjustment efforts by getting rid of laws and regulations that restricted competition, like labour and wage laws, as well as import, pricing, and distribution controls.
A few unofficial sectors, including those in the transportation industry, abused the market as a result of this liberalisation. Small businesses were able to enter the transportation sector because of liberalisation, which made it simple to get operator licences for commuter omnibuses.
In addition, people started entering various sectors and operated as informal players. Thus, informality at massive scale was born and continues even up to today.
iv. Wealth creation: The informal sector emerged as a strategy of generating income during the economic crisis of 2000 to 2008 as a result of hyperinflation and public service cuts that took advantage of the mismatch in the economy.
The necessity for households to augment revenues from the formal sector kept the informal sector alive after the crisis. One could argue that the informal sector should expand since it is just as important to the expansion and improvement of the economy as a whole.
v. De-industrialisation and economic decline: Between 1999 and 2008, the economy shrank at an average annual rate of 6.3 percent.
The fast-track land reform programme (FTLR) which started in 2000 made the situation worse as most formal activities that were directly and indirectly linked to the agriculture sector, for instance as input suppliers or as users of output from the sector were negatively affected, resulting in them retrenching some of their labour. This exacerbated the informality of the Zimbabwean economy.
vi. Tax evasion: A study by Sakuhuni in 2014 pointed out the third cause of informality in Zimbabwe considered tax evasion as one of the reasons why Zimbabwe has numerous small and medium enterprises (SMEs) but most of them are not registered as such become part of the informal sector. One reason why most entities are not registering is to evade tax and other government regulations or requirements.
The majority of SMEs in the country operate secretly and thus evade tax. FinScope Survey of 2012 indicated that 85 percent of the MSMEs in Zimbabwe are not registered or licensed. Tax evaders would normally engage in a small scale and operate in the backyard where they would hide.
vii. Frequent droughts: According to a study by Saungweme and colleagues, the majority of businesses experienced significant layoffs, closures, and downsizing as a result of a string of unfavourable environmental events, including the drought in 1992, 2002, and 2007–2008.
Droughts continue to haunt the country and have a detrimental effect on Zimbabwean agriculture, which is strongly dependent on rain, which caused rural-urban migration, especially among people whose primary source of income was farming.
During these times, the economy was contracting, making it impossible for the migrants — especially the less educated ones — to find employment in the productive sector. This gave rise to a chance for unofficial activity. As hawkers, they engaged in commodities broking, purchasing and vending clothing, tobacco products, and produce.
viii. Means of survival: The majority of people have been compelled to work in unofficial jobs to survive and support themselves. Those who first relied on covert means of subsistence were the ones who suffered throughout the phase of structural adjustment.
Those who were later unable to withstand the heat of hyperinflation amid the financial collapse also climbed onto the wagon. Cross-border trade has grown significantly in popularity, with individuals traveling to nations like South Africa, Zambia, Tanzania, and even China and the United Arab Emirates (Dubai) to bring groceries, clothing, and electronic devices to sell informally.
A combination of the mentioned factors and many more others perpetuated the existence of the informal sector in Zimbabwe as most citizens wanted to earn a living and have a decent livelihood. These factors continue to hold even today.
An extract from the 2023 ZNCC Annual State of Industry and Commerce Survey Report.
