Online Reporter
Marilyn Mutize-Herald Correspondent
Zimbabwe’s informal sector has become a lifeline for many, particularly during critical periods such as the current back-to-school season.
Citizens are increasingly relying on informal traders for essential items like uniforms, stationery, and school supplies, citing their affordability and variety compared to formal retailers.
This trend underscores the vital role of the informal sector, which has grown to dominate the economy, accounting for approximately 64,7 percent of GDP and employing more than 80 percent of the workforce.
Despite its significance, the sector remains largely unregulated, posing challenges and missed opportunities for economic growth.
Formalising the informal sector is a crucial step Government should take to harness its full potential.
This process allows for the integration of informal traders into the formal economy, enabling them to contribute meaningfully to national development, while benefiting from protections and opportunities available to formal businesses.
One of the most compelling reasons for formalisation is the potential to enhance tax revenue.
Informal traders currently operate outside the tax net, depriving the Government of significant revenue that could be used to fund public services and infrastructure projects.
Zimbabwe’s tax-to-GDP ratio, which hovers around 13 percent, is below the regional average of 17,2 percent, according to data from the African Tax Administration Forum.
Bringing informal businesses into the tax system could bridge this gap, reducing fiscal deficits and enabling the Government to invest in critical sectors such as education, health, and transport.
This additional revenue could help reduce the country’s dependence on external borrowing, improving fiscal sustainability. Formalisation also improves access to financial services, a critical factor for business growth.
Informal traders often lack access to credit, insurance and banking services, which limits their ability to expand operations or weather economic shocks.
By registering as formal businesses, these traders would be eligible for loans and other financial products, empowering them to scale up their activities.
This increased access to capital could lead to higher productivity and job creation, contributing to overall economic growth.
A study by the International Labour Organisation (ILO) revealed that formalisation enables informal entrepreneurs to tap into broader markets, access Government tenders, and form partnerships with larger corporations.
Another key benefit of formalisation is the establishment of regulatory oversight, which ensures fair competition and consumer protection.
Informal markets, though vibrant, often lack quality control mechanisms, leading to the proliferation of counterfeit or substandard goods.
Formalising the sector would enforce adherence to standards, protecting consumers while fostering a level playing field for businesses.
This will benefit not only traders but also citizens, who would gain greater confidence in the products and services they purchase.
Formalisation could also address the issue of labour insecurity in the informal sector.
Workers in this sector often face low wages, poor working conditions, and a lack of social protections.
By integrating informal businesses into the formal economy, employees would be entitled to labour protections such as minimum wages, safe working conditions, and access to social security schemes.
This would not only improve livelihoods, but also enhance economic stability by reducing poverty and inequality.
Labour formalisation also enhances the ability of workers to unionise, giving them a collective voice in advocating for their rights and welfare. Despite its clear advantages, formalising the informal sector is not without challenges.
Many informal traders view formalisation with scepticism, fearing increased taxation and regulatory burdens.
Government must address these concerns by implementing simplified registration processes and offering incentives such as tax breaks or grants for newly formalised businesses.
Capacity-building initiatives, including training programmes on financial literacy and business management, would also help traders navigate the formal economy.
Efforts to formalise must be inclusive and consider the unique needs of various segments within the informal sector.
For instance, women, who make up a significant proportion of informal traders, often face additional barriers such as limited access to resources and discrimination.
Policies aimed at formalisation should include gender-sensitive measures to ensure equitable participation and benefits.
Tailored interventions, such as low-interest loans specifically for women-owned businesses, could help bridge the gap and empower more women to participate in the formal economy.
The potential impact of formalising Zimbabwe’s informal sector extends beyond national borders.
A well-regulated economy with transparent business practices is more attractive to foreign investors, who value stability and predictability.
Increased foreign direct investment could bring additional capital, technology transfer, and job creation, further boosting the country’s economic prospects.
Formalisation also enhances regional trade, as traders gain the credibility and resources to participate in cross-border commerce, leveraging opportunities within the Southern African Development Community (SADC).
Moreover, formalisation allows better data collection and economic planning. The informal sector’s contribution to GDP is often underestimated due to a lack of reliable data.
Integrating informal activities into the formal economy provides a clearer picture of economic performance, enabling policymakers to make more informed decisions.
Accurate data also enables Government to identify and address sector-specific challenges, ensuring that policies are well-targeted and impactful.
As the back-to-school season highlights the growing reliance on informal traders, responsible authorities must recognise this sector’s indispensable role in Zimbabwe’s economy.
Formalising the informal sector is not merely an administrative exercise; it is a transformative strategy that can unlock the country’s economic potential while improving the lives of millions who depend on informal trade for their livelihoods.
The journey requires collaboration among Government, private sector, and informal traders themselves.
By creating an enabling environment that supports and incentivises formalisation, Zimbabwe can lay the foundation for a more inclusive, equitable and prosperous economy.
This should be seen not as a burden but as an opportunity to transform informal traders into drivers of sustainable development, ensuring that their contributions to the economy are recognised, supported, and maximised.
To achieve this vision, there is need for long-term engagement with informal traders, fostering trust and understanding through consistent dialogue and transparent policymaking.
A phased approach to formalisation, coupled with targeted support mechanisms, will ensure that the transition benefits all stakeholders.
By formalising the informal sector, Zimbabwe can chart a path towards economic resilience, social equity, and national prosperity.
