How To Formalize Zimbabwe’s Booming Informal Sector

Takudzwa Chihambakwe

Zimbabwe like many other developing nations, is faced with a challenge of formalising business operations in the informal sector.

Many players in the sector are not paying their taxes, leading to the government losing millions of dollars in revenue.

For that reason, Finance and Economic Development Minister, Professor Mthuli Ncube introduced the intermediated monetary tax which covers for tax defaulters and the majority of these are in the informal sector.

But how can treasury turn things around in this sector and start collecting the revenue it has been losing for years?

To help us tackle this issue we spoke with International Labour Organisation Harare’s Informal Economy Specialist, Annamarie Kiaga.

“The biggest challenge in formalizing the informal economy in Zimbabwe is its composition. When more people are in the informal economy because they have no choice but to subsist, their transition to formality takes time,” she said.

“In Zimbabwe, there are more own account workers and those who work for families and that makes it challenging but doable. The strategies needed become different.”

Difficult as it may be, how can government tap into the informal economy to boost decent jobs and economic growth in Zimbabwe?

Kiaga responded, “It is time for governments to recognize and acknowledge the significance of the informal economy. It begins by recognizing informal workers as ‘workers’ – as legitimate economic agents.

“Two ways to do this, both nurture the informal sector and encourage informal businesses to formalize their operations. Although individually they have few resources, as a collective they could become a formidable source of resources.”

Kiaga added that by simplifying compliance mechanisms more businesses can comply and trigger a shift from informal to formal operations.

“Simplifying compliance mechanisms, extending social protection and the like. Also, a focus on productivity, regulations, incentives and enforcement.

“Many countries have succeeded. Oldest examples are from Latin American countries – Brazil, Argentina, Peru – but more African examples can be found such as Algeria, Cameroon, Egypt, Ghana, South Africa and Tunisia.”