By Shephard Majengeta
THE informal sector, often dismissed as peripheral and chaotic, is an indispensable pillar of Zimbabwe’s economy. It has emerged as a critical source of livelihood for millions of Zimbabweans.
Not only is it a survival strategy but a dynamic engine of economic activity and innovation. However, one of the contentious issues surrounding the informal sector in Zimbabwe is its reliance on foreign currency transactions.
Tuckshop owners and other informal traders often prefer to trade in US dollars or other foreign currencies rather than the Zimbabwe dollar (ZiG). This practice threatens the growth of our economy. And the Financial Intelligence Unit, an arm of the Reserve Bank of Zimbabwe, is determined to redress this anomaly by bringing to book operators in the informal sector flouting the country’s financial regulations. By refusing to accept the ZiG or manipulating the exchange rate, the informal sector is giving consumers a raw deal.
The formal sector has accepted the ZiG and accepted it at the prevailing official rate. Not so in the informal sector, especially tuckshop owners operating downtown. However, in this issue I want to remind players in the informal sector that they are an important component of the economy crucial to sustainable growth. They do not need the whip but must just do the right thing. In Zimbabwe, the informal sector is a substantial employer, absorbing a significant portion of the labor force that cannot find jobs in the formal economy.
According to the International Labour Organisation (ILO), the informal economy in Zimbabwe accounts for over 60 percent of employment. This sector encompasses a wide range of activities, from street vending and smallscale manufacturing to service provision and agriculture. It is a testament to the resilience and ingenuity of Zimbabweans who have found ways to generate income and support their families in the face of economic challenges wrought by the illegal sanctions imposed by the US and Britain. One of the most crucial contributions of the informal sector is its role in employment generation. With the formal sector unable to provide sufficient job opportunities, the informal sector has stepped in to fill the gap. It has offered a lifeline to many who would otherwise be unemployed, thereby reducing poverty levels and improving living standards.
For many, the informal sector has not just been a fallback option but a primary source of livelihood. Small businesses and enterprises run by individuals and families form the backbone of this sector. These micro-entrepreneurs are involved in various trades, including selling agricultural produce, handmade crafts, clothing and essential household items. By doing so, they have not only supported their households but also contributed to the local economy through their entrepreneurial activities. The informal sector’s flexibility and adaptability are the main reason why it continues to thrive even in times of economic uncertainty. Unlike the formal sector, which is often constrained by regulatory and bureaucratic hurdles, the informal sector can quickly adapt to changing market conditions. This adaptability has enabled informal businesses to respond swiftly to consumer needs and preferences, providing goods and services that are often more accessible and affordable than those offered by formal enterprises.
During economic downturns, such as the hyperinflation period Zimbabwe experienced in the late 2000s, the informal sector played a crucial role in sustaining the economy. While formal businesses struggled to cope with the economic instability, informal traders and entrepreneurs found innovative ways to keep their businesses afloat. They resorted to creative solutions to maintain their livelihoods and ensure the availability of essential goods and services. However, to bridge the gap between the formal and informal sectors and enhance the overall economic environment, financial inclusion is paramount. Many informal sector participants lack access to formal banking and financial services, which limits their ability to save, invest and grow their businesses.
Enhancing financial inclusion through tailored financial products and services can empower informal traders and entrepreneurs, enabling them to expand their operations and contribute more effectively to the economy. Mobile banking and digital payment platforms have shown promise in increasing financial inclusion in Zimbabwe. By leveraging these technologies, informal sector participants can access financial services without the need for traditional banking infrastructure. This can facilitate easier transactions, improve savings habits and provide access to credit for business expansion.
Financial institutions should work together to promote the adoption of digital financial services in the informal sector, ensuring that these solutions are accessible and affordable for all. While the informal sector thrives on its flexibility and adaptability, there is a need for a supportive regulatory framework that recognises its importance and addresses its challenges. Rather than waging war against the informal sector, authorities should adopt an inclusive approach that encourages responsible business practices while providing the necessary support for growth and development.
Regulations should be designed to formalise and legitimise informal businesses without imposing undue burdens. Simplified registration processes, tax incentives and access to training and support services can help informal traders. By doing so, the Government will broaden its tax base, improve regulatory compliance and enhance the overall business environment.
Investing in skills development and capacity building is essential for enhancing the productivity and competitiveness of the informal sector. Many informal sector participants lack formal education and training, which limits their ability to innovate and improve their businesses. Providing access to vocational training, business development services and mentorship programmes can empower informal entrepreneurs with the skills and knowledge needed to thrive.
Additionally, promoting linkages between the formal and informal sectors can create opportunities for collaboration and knowledge transfer. Formal businesses can provide technical assistance, market access and supply chain integration to informal enterprises, fostering a more inclusive and dynamic economy.
The informal sector’s contributions extend beyond economic resilience and employment generation. It plays a crucial role in fostering social cohesion, community development and cultural preservation. Informal traders and entrepreneurs often operate within tight-knit communities, where they build relationships and networks that strengthen social bonds. These interactions create a sense of belonging and mutual support, enhancing community resilience and well-being.
Moreover, the informal sector is a repository of indigenous knowledge, skills and cultural practices. Traditional crafts, artisanal products and local cuisine are often produced and sold by informal traders, preserving cultural heritage and promoting tourism. Recognising and supporting these cultural assets can enhance national identity and contribute to the broader development agenda. To harness the full potential of the informal sector and integrate it into the national development framework, a comprehensive and inclusive policy approach is necessary.
The informal sector in Zimbabwe is not just a marginal player in the economy; it is a vital engine of growth, resilience and development. Its contributions to employment generation, poverty alleviation and economic adaptability are indispensable. By adopting a supportive and inclusive policy approach, we can harness the full potential of the informal sector and integrate it into the broader development agenda. As we pursue Vision 2030 of an upper-middle income economy let us remember that the informal sector is not a problem to be solved but a vital part of the solution. By embracing its strengths and addressing its challenges, we can build a more inclusive, resilient and prosperous economy for all Zimbabweans.