Africa

Zim: Informal economy fast taking over

Jason Moyo

A recent World Bank report says almost half of Zimbabweans run small businesses on the side.

Going it alone: Reselling bread at a farm makes ends meet for this unidentified man. (Aaron Ufumeli)

Few places show how Zimbabwe's formal economy is giving way to informal trade better than the shiny new mall on Harare's Kwame Nkrumah Street.

Years ago it used to house AMC Motors, once one of Zimbabwe's largest car dealerships. Now workers are putting the finishing touches to row upon row of brightly coloured kiosks, as the new tenants race to line up mannequins all along the well-lit corridors. 

Outside one of the new stores, Ebenezer Micro-Finance, Garikai Furusa is putting up signage. He is just one of the hundreds of loan sharks who capitalise on the many who are desperate for cash. Just like the government itself, many are sinking in debt, taking out small loans to fund some new business scheme or another to survive.

"Everyone is always looking for a bit of extra cash, especially traders. So we decided to set up shop here," says Furusa.

Side jobs to get by
According to a World Bank report released in February, 46% of Zimbabwe's population run a small or medium-sized enterprise of some sort. In South Africa the figure is 17%. Even those in formal employment are relying on side jobs to get by.

"People will go for months without pay. But they still turn up for work because the workplace has become a marketplace for their goods and services," says George Nkiwane, leader of the Zimbabwe Congress of Trade Unions.

Just how big is Zimbabwe's informal economy? Small and Medium Enterprises Minister Sithembiso Nyoni says as much as $7.4-billion could be circulating in the informal market. Other estimates put the figure much lower, at around $2-billion.

Still, there is no doubt that the informal market is taking over. A 2012 survey by Nyoni's department shows that 5.7-million jobs had been created by 2.8-million small business owners. More than 70% of these enterprises did not, however, employ anyone other than the owner.

This week the chief executive of the state energy industry regulator, Gloria Magombo, said fuel consumption had doubled since 2009, which should be a surprise, given the shrinking of industry. "Consumption cannot keep growing. The consumption of fuel is not even matching the growth of the rest of the economy. What it means is that there is an economy somewhere, which is not part of the formal economy."

Banks taking notice
Although many still frown at the shift away from the traditional suit-and-tie economy, some big businesses are beginning to take notice of the booming informal market. ZB Bank, one of the country's oldest and largest banks, says it plans to grow its lending to the informal market, which is seeing the most growth and has the lowest default rates.

Finance Minister Patrick Chinamasa says critics worried by the growth of the informal sector need to accept the new reality. "The old economy is dead," he has said, with no hint of regret.

But although Chinamasa applauds the "death" of the formal economy, he is yet to find ways to extract any tax from the billions in the informal market. Until then, he has to contend with falling tax revenues from the shrinking formal economy.Going it alone: Reselling bread at a farm makes ends meet for this unidentified man. Photo: Aaron Ufumeli

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