The Sunday Mail
Tau Tawengwa
International Workers’ Day came and went basically unnoticed in Zimbabwe, where the predominance of the population earns a living in the informal economy.
While the informal economy is not unique to Zimbabwe, statistics from the International Monetary Fund show that Zimbabwe has the second biggest informal economy in the world.
Certainly it is an unenviable position for any country to be in, because the informal economy is characterized by lawlessness, verbal agreements exploitation, lack of hygiene and unorganised labour.
On the other hand, the formal sector is characterised by an organised system of employment, formal rules and written agreements, employer and employee rights, fixed salaries and formal management systems. What’s interesting in Zimbabwe, however, is that despite the enormity of the informal economy, it is in some cases proving to be more lucrative than the formal economy.
Over the last year, I have interviewed several informal sector entrepreneurs who were forced to leave formal employment owing to retrenchment or company closures. About half of the people that I spoke to unambiguously stated that they are making much more money in the informal sector than they ever did in formal employment.
Put plainly, business is booming for some informal traders, particularly for “makorokoza”, cross border traders, money changers, commodity brokers and even some informal teachers who conduct private lessons. The question therefore, is how can we harness the skills and revenues in the informal sector in such a way that the informal sector in its entirety contributes meaningfully to the national fiscus?
In this article, I will attempt to address that question using examples from different parts of the world.
Incentives for informal traders
In 1980, the Zimbabwean economy was considered an industrial giant in the SADC region and boasted a strong manufacturing sector, iron and steel industries, and modern mining ventures.
However, industrial activity began to contract in the 1990s after the introduction of the Economic Structural Adjustment Programme (ESAP). While ESAP was supposed to herald a new era of modernised, competitive and export-led industrialization, instead, it contained the recipe for neoliberal economic disaster.
It was characterised by currency de-regulation, devaluation of the Zimbabwe dollar, movement towards high real interest rates, the lifting of price controls, chopping of “social spending” and removal of consumer subsidies.
These were all standard ingredients of “liberalisation,” and resulted in job-losses and company closures in the 1990s.
Unfortunately, post 2000, retrenchments and company closures increased, owing to land reform-related sanctions and embargoes as well as poor economic planning on the part of the Government at the time.
Now, we have the second biggest informal sector in the world, and our widespread “musika” will be a permanent reminder of Zimbabwe’s economic backslide which began in the 1990s.
However, the country can benefit from informal sector revenue if worthwhile incentives are offered to informal sector traders. For instance, bankers and government officials in countries like Bangladesh, Kenya and South Africa have categorically stated that the informal sector is a major source of revenue and could semi-formalise if the right incentives are offered to informal traders.
Such incentives can include pension and insurance schemes, specifically designed for informal traders. Such schemes would be well-received if offered by established insurance firms and banks, and perhaps even the state, but only at a time when the state has fully regained the confidence of citizens.
Another form of incentive that can be offered to informal traders is low cost medical insurance in the form of universal healthcare. In this context, the widely reported National Social Security Authority (NSSA) initiated National Health Insurance Scheme would be a useful incentive for the informal economy.
Creation of informal sector unions
One thing that is clear about informal sector trade in Zimbabwe, like in many other countries, is that the sector is widespread yet disjointed, and unorganised.
This means that key information pertaining to the various trades in the informal sector is illogically scattered.
For that reason, policy-makers at local government and national level are perhaps inadequately informed on how to deal with the informal sector and its related issues. It is therefore necessary for registered sector-specific unions in the informal economy to materialise, particularly for the purposes of dialogue with policy-makers and the corporate world.
Currently, informal sector unions successfully function in countries like Ghana where the informal sector contributes approximately 41 percent to the GDP, and where approximately 90 percent Ghanaians are employed in the informal sector.
Various local researches have concluded that there are many other incentives that can be offered to the informal sector. If successful partnerships are formed between the Government, the private sector and the informal economy, then in the middle to long term, we could find that informal sector traders will willingly begin to pay taxes.
While it is positive that Zimbabwe is open for business, we should acknowledge that we are living in a global era of “jobless growth” and therefore we should not expect that foreign direct investment to adequately absorb all job seekers.
In this context, it is necessary for the state and our private sector to forge meaningful partnerships with the informal sector. After all, the informal sector is a lucrative source of revenue.
Tau Tawengwa is conducting doctoral research on social entrepreneurship and the informal sector in Zimbabwe.
