Zimbabwe Informal Sector 6th Biggest in Africa

Zimbabwe’s informal sector could be the sixth largest in the Sub-Saharan region, contributing between 40 percent and 50 percent to economic growth — an estimated $7 billion — especially for the four-year period between 2010 and 2014, according to the latest International Monetary Fund (IMF) working paper.

The country’s gross domestic product (GDP), which measures the amount of annual economic output, is estimated at $16,3 billion. However, the working paper — compiled by Leandro Medina, Andrew Jonelis and Mehmet Cangul — does not reflect the official views of the multilateral international financier. At $7 billion, the projected value of informal sector made in the new survey tallies with a study made by FinScope in 2012.

While the Reserve Bank of Zimbabwe (RBZ) estimates that there could be $2,5 billion circulating in the sector, a FinScope MSME (micro, small and medium enterprises) survey that was conducted by the Ministry of Small and Medium Enterprises and Co-operative Development in conjunction with FinMark Trust and the World Bank in 2012 concluded that the turnover in the informal sector was more than $7,4 billion.

The FinScope MSME survey is a research tool that was developed by FinMark Trust, a Johannesburg-based non-profit research consultancy.

In coming up with the report that was released in June 2013, FinMark Trust researchers first polled over 57 000 households in 500 areas and by extrapolating their findings to the broader population, the researchers estimated that there were 2,8 million MSME business owners in the country, running about 3,5-million businesses.

Though the new IMF working study concludes that the size of the informal sector in the region is perhaps the largest in the world, there are distinct differences among countries, with percentages ranging from as low as 20 percent to 25 percent in South Africa to as high as 50 percent to 65 percent in countries such as Benin, Tanzania and South Africa.

But most crucially, the findings discovered a correlation between the size of the informal sector and income levels, as is the norm globally. “Results also suggest that broadly, informality seems to fall with the level of income likely reflecting higher Government capacity and better incentives toward formality in higher income countries.

“This global trait also holds for Sub-Saharan Africa, as the informal economy averages 40 percent in the region’s low income countries and 35 percent for its middle income countries,” observed the report.

Nigeria, Africa’s second-biggest economy after South Africa, is understood to have the biggest informal sector, which is roughly half the size of the $481 billion economy.

Market watchers say local MSMEs have now overtaken the formal sector as the biggest employers in Zimbabwe. Academics and researchers are not agreed to the definition of what constitutes the informal economy, which is sometimes also referred to as the shadow economy or black economy.

But it is largely accepted that this sector “comprises economic activities that circumvent costs and are excluded from the benefits and rights incorporated in laws and administrative rules covering property relationships, commercial licensing, labour contracts, financial credit, and social systems”.

“Informal economic activity severely limits the tax revenues for developing countries most in need of a stable economic base,” adds the report.

In coming up with the current estimate, researchers multiple indicators — a break from the previous practice that only relied on one indicator.

There is concern that activity in the informal sector does not contribute to the fiscus. Government, through the Zimbabwe Revenue Authority (Zimra), has, however, been trying to formalise to help many businesses register for tax purposes through offering various incentives.

At the beginning of June, more than 9000 SMEs had complied with a directive to register with Zimra before June 30, 2017.

The Ministry of Finance and Economic Development issued a six-month moratorium on penalties for non-compliant SMEs that were eligible for tax registration before January this year.

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Source: The Herald

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