Editorial Comment: Informal sector needs to play ball

Minister Sithembiso Nyoni
Minister Sithembiso Nyoni

Last week when Small and Medium Enterprises and Co-operative Development Minister Sithembiso Nyoni said that at least US$7, 4 billion is circulating in the informal sector, the reason behind the liquidity crunch biting the country came to light.

The situation, which is exacerbated by loss of confidence in the banking sector following the 2007-8 financial crisis, is the reason behind the crippling liquidity crisis that is threatening the country’s fragile economic recovery.

The national fiscus is losing substantial amounts of money from the untapped informal sector. When such a huge amount of money is exchanging hangs in the informal sector, it is a sure cocktail of economic doom. How then is the economy supposed to be resuscitated?

One can be forgiven for assuming that the informal sector only generates insignificant amounts but then, nothing can be further from the truth. If Minister Nyoni’s revelations are anything to go by then there is actually enough money in that sector alone to wholly finance the US$4,2 billion National Budget.

Yet most of the players in the informal sector are not contributing anything at all to the national fiscus. Most of them have deliberately avoided registration in order to for-go taxation. The Zimbabwe Revenue Authority (Zimra), the body mandated to collect taxes for the Government, should keep a sharp eye on these players.

Whether someone is a musician, vending, trading in the wholesale and retail sectors or repairing motor vehicles, they still need to contribute to the national fiscus through tax. Government can simply not allow this daylight robbery to continue.

Government should indeed go a gear up in bringing sanity in the informal sector. In this light, every player in the informal sector should be registered and licensed for their economic activities.

The macro-economic fundamentals are clear for all to see, the formal and informal sector tributaries have to meet at some point and then feed into the national fiscus.

The central bank, under the leadership of incoming governor Dr Mangudya, and the Bankers’ Association of Zimbabwe have a mammoth task ahead of them. Restoring confidence in the banking sector must be their point of departure and hopefully everything else will fall into place.

The majority of Zimbabweans remains unbanked. Could it be that they have no money to bank or they have simply lost confidence in the banking sector? The latter holds more water, for it has become increasingly popular over the years for people to do their informal transactions outside banking institutions. And most mention high interest rates as their major reason for evading banks.

Most bank deposits are short-term and transitory. As soon as money is deposited by this informal trader, the next informal trader quickly withdraws it and “banks” it in the trunk of their car or at home.

Players in the informal sector simply need to realise that the economy is currently charged with so much potential and they are holding it ransom at the expense of the nation. They need to play their part in order to take the economy to the next level.

This phenomenon is also creating room for the externalisation of money.
Many companies in the region view Zimbabwe as a source of US dollars. That is a problem waiting to explode. The liquidity crunch will continue biting as more money finds its way out of the country. The US dollar looters simply come into the country, sell their goods to the informal traders and then leave with our money.

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  • Jambanja paSalisbury

    Liquidity crunch=deflation=reduced demand=reduced disposable income=increased unemployment levels=reduced bank deposits=increased monetary leaks associated with divestiture or call it capital flight……the list is endless and the reasons arguable depending on stakeholder’s orientation.