Staff Writer 
BUSINESS is at the end of its tether over the triple whammy of Zimbabwe’s continuing exchange rate distortions, booming informal sector and public policy failures.
Speaking to The Financial Gazette — the country’s number one business publication and prime voice for commerce and industry — experts said this week that it was time for authorities to fully appreciate that these challenges presented an “economic timebomb”.
This comes as the three issues are not just threatening the viability of formal, tax-paying businesses, but also continuing to jeopardise the local currency and the government’s depleted coffers.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Christopher Mugaga, was among the experts who said it was crucial that authorities dealt with these challenges urgently to lift business, jobs and the country’s ailing economy.
“In dealing with the growing informality, it is critical to make sure that Zimbabwe addresses the seemingly perennial challenge of exchange rate mispricing.
“In an environment where the market is convinced that the local currency is overvalued, where the market is convinced that the US dollar is not equal to ZiG30, you will not be able to address informality.
“This is so as there will always be a business case for someone in the street to offer a better rate than the formal industry.
“So, the exchange rate right now is one of the biggest drivers of informality in this market,” Mugaga said.
“Then … there is the challenge related to high unemployment. If you want to know that there is high unemployment, you can use the proxy of informality to measure it. When the economy becomes informal, it means that it is deprived of creativity and is also deprived of potential tax revenue, as well as lawfulness.
“The unemployment rate in the country is so high that one just needs to look at the percentage of those in the informal sector versus those in the formal sector.
“In addition, ‘informal employment’ is a negative because those who are in informal employment are not contributing much to the fiscus other than through VAT and fuel taxes,” Mugaga added.
Industrialist Busisa Moyo highlighted the need for consistent enforcement of regulations to tackle unfair competition for companies.
“For example, municipal by-laws must be enforced, and informal traders should be relocated to designated trading zones,” he said.
Moyo also criticised lax border controls, which allowed the smuggling of goods that evaded taxes, thereby undercutting local producers and formal traders.
“What we are seeing is not entrepreneurship, it is lawlessness,” he declared.
Moyo also called for the aligning of exchange rates and the enforcing of import regulations to protect formal businesses.
In addition, he called for measures to incentivise local production — noting that only a fraction of goods like school shoes and exercise books were manufactured locally.
“Zimbabwe is now 90 to 95 percent informal. Tax contributions are dwindling and entrepreneurship should exist within a structured, supportive environment,” he said further.
Veteran economist Eddie Cross painted an even grimmer picture of the prevailing state of affairs.
“The formal economy, which creates jobs and pays taxes, is dying. Most firms would state that they cannot compete with the informal sector,” he said.
Cross further estimated that more than 70 percent of Zimbabwe’s economy was now informal — a level that he believed was among the highest globally.
“This is creating another crisis in the fiscus as revenues are not able to meet the budget. The State is not paying its bills, further exacerbating the private sector crisis,” he further told The Financial Gazette this week.
Cross went on to outline a roadmap for economic stabilisation, calling for the floating of the ZiG, the elimination of exchange controls and the use of the ZiG for all statutory payments.
“These measures would rapidly establish the ZiG as a major currency,” he argued — adding that more market-driven reforms were essential to restore confidence in the local economy.
The president of the Confederation of Zimbabwe Retailers (CZR), Denford Mutashu, also highlighted the stark realities formal businesses, and especially the retail sector, were facing amid the burgeoning grey economy in the country.
He pointed out that while formal retailers shouldered hefty tax burdens and complied with a raft of regulations, informal traders did not pay taxes, flouted by-laws and operated with minimal overhead costs.
“This dynamic has created a vicious cycle where formal businesses are overburdened with taxes while the informal sector flourishes unregulated,” Mutashu said.
He went on to propose incentives that include tax amnesties and affordable financing to encourage informal traders to formalise their businesses.
The chief executive of the SMEs Association of Zimbabwe, Farai Mutambanengwe, said adverse policies — such as the country’s high cost of business compliance and distorted exchange rates — had driven many companies out of the formal sector.
“Our formal sector is crumbling due to adverse policy impacts,” he said, further calling for the stabilisation of the exchange rate, which he argued would enable formal businesses to operate viably.
“The issue should not be about forcing formality on the informal sector, but about fixing the bleeding in the formal sector,” he also said, adding that once formal businesses were thriving, informal players would “naturally follow suit”.
Economic analyst Prosper Chitambara underscored the close link between the country’s growing economic informality and rising joblessness.
“Economic growth in Zimbabwe has not been employment-intensive. To address informality, the economy must grow in a way that creates decent employment opportunities,” he said.
Chitambara also pointed to the high cost of business compliance as a major deterrent for informal traders to consider formalisation.
Another economic analyst, Kudakwashe Munemo, warned that recent retrenchments and business closures, including those in the sugar industry, were symptoms of the country’s broader economic decline.
“This reduction in disposable income has a direct bearing on communities’ access to services like health, education and food,” he said.
Munemo also stressed the need for a stable business environment to reverse the current trend.
Economic analyst, Vince Musewe, zeroed in on how informality often led to unethical business practices and inefficiencies — which ultimately harmed the economy.
“Jobs are created when businesses have confidence to invest in the future.
“That confidence is created by a stable economy with predictable policies and good leadership,” he added.
