Online Reporter
Nelson Gahadza
THE World Bank has urged Zimbabwe to focus on improving productivity in the informal economy rather than merely pursuing formalisation, warning that registering businesses alone is unlikely to deliver meaningful economic transformation.
The call is contained in the World Bank’s Zimbabwe Growth and Jobs Report, released this week, which highlights the central role played by the informal economy in Zimbabwe’s labour market and overall economic activity.
Zimbabwe’s economy experienced significant informalisation following years of hyperinflation and economic challenges that affected the country over nearly two decades after the turn of the century.
According to the report, about four in every five jobs in Zimbabwe are informal, while the informal economy contributes an estimated two-thirds of the country’s gross domestic product (GDP).
While the informal sector offers better earning opportunities than subsistence agriculture, with non-agricultural informal incomes averaging 55 percent higher than rural agricultural earnings, productivity remains well below that of the formal sector.
“Policies targeting the informal sector should primarily focus on raising productivity and not just formalisation,” the World Bank said, citing evidence from formalisation programmes implemented globally.
The World Bank said registration initiatives have generally yielded limited improvements in business performance unless accompanied by measures that address other constraints facing enterprises, particularly access to finance and capacity-building support.
The report also recognises the informal economy as an important platform where firms and workers accumulate capital, skills and market relationships.
Rather than seeking to eliminate informality outright, the World Bank recommends promoting upward mobility within the sector by strengthening market linkages, improving security of land tenure and expanding access to finance.
Such interventions, the report said, would enable more productive informal businesses to grow, with some eventually transitioning into the formal economy.
The productivity challenge remains significant, given the limited size of Zimbabwe’s formal private sector, which employs only about 11 percent of the working population but offers wages that are 56 percent higher than those earned by informal-sector workers.
Labour productivity in informal businesses is also only a fraction of that recorded in the formal sector.
At the same time, the report noted that competition from informal businesses has reduced formal-sector productivity by an average of about 24 percent, underlining the wider economic impact of the productivity gap.
The World Bank proposed a three-pillar reform agenda focused on investing in foundational infrastructure, creating a business-friendly regulatory environment and mobilising private investment.
Tax reform forms a key component of the agenda, with the lender recommending the replacement of the presumptive tax regime with a simplified tiered system, alongside streamlined licensing and permitting processes.
The report also calls for greater data interoperability among registration agencies to reduce the administrative burden on businesses.
“These three SME tax reform components are mutually reinforcing,” the report states. “By removing enough friction at once, formalisation becomes the rational choice.”
The recommendations come as Government is implementing a number of initiatives aimed at strengthening the capacity and competitiveness of micro, small and medium enterprises (MSMEs).
One of the emerging initiatives is the Zimbabwe Entrepreneurship Exchange (ZEEX), an alternative SME trading platform to be operated by the Zimbabwe Stock Exchange.
The platform will provide SMEs with a dedicated avenue for raising capital, with Government and regulators working on simplified listing requirements tailored to smaller businesses.
ZEEX is expected to widen access to finance while supporting innovation, entrepreneurship and inclusive economic growth.
Government is also expanding support for SMEs through the Small and Medium Enterprises Development Corporation (SMEDCO), which has been allocated ZiG152,3 million under the 2026
National Budget to support access to affordable long-term financing.
In addition, Government is investing in infrastructure for small businesses through the development of MSME workspaces, factory shells, industrial hubs, vendor marts and roadside markets.
The 2026 National Budget targets the establishment of at least one new MSME workspace in each of the country’s 10 provinces over the medium term.
