adminAlbert Norumedzo In the Money
With unemployment on the rise as most companies find it hard to survive under the difficult economic environment, the informal sector has become a refuge for the greater part of the population that the formal labour market has failed to accommodate. Despite formal sector employment levels dwindling to below 20 percent, the number of economically active people continues to constitute a great portion of the country’s total population.
Having its roots in Rhodesian epoch, the informal sector, has for a long time co-existed parallel to the formal sector.
The black majority, which could not make it into the formal employment due to infant stage of industry, resorted to informal sector employment.
As the industry grew, more and more people found their way into formal employment leading to a massive migration from the informal sector.
Then came years of economic decline characterized by a hyperinflationary environment that crippled the industry and the monetary system resulting in unemployment levels rising above 90 percent, the informal sector started growing again to become the most viable alternative for household economic subsistence.
Presently, the informal sector remains the most viable source of jobs. With close to 90 percent of the economically active population said to be involved in informal businesses either as the only source of income or to supplement income from formal employment, it would be inappropriate to ignore the role that the sector is playing in economic subsistence and development.
The informal sector is the foundation of the development of a middle income class which in turn has been proved to be a key piece in economic growth and development.
With this notion in mind Government should fully explore and initiate ways of incorporating the informal sector into the Government initiated economic growth efforts.
Policies like ZimAsset, indigenisation, urban planning and management, infrastructural development policies, HIV programmes and legal framework development should all speak to the needs of the informal sector.
There have been a couple of occasions where policy formulation or implementation has often played antagonist to informal sector growth and viability.
There has been indications that the Ministry of Transport intends to ban the use of Commuter Omnibuses for public transport and introduce Metro Buses to bring sanity on our streets and roads particularly in Harare’s central business district.
But from an economic point of view one has to assess the number of people who survive from this trade.
Clearly these people cannot be accommodated in the shrinking formal sector employment.
If the authorities disregard the economic impact of this attack on this segment of the informal sector activity in the interest of other economic goals, it would seem like digging a hole to cover another.
The Indigenisation and Empowerment Act should speak directly to growing and formalising the informal sector into proper Small to Medium Enterprises that can grow into huge corporate that graduate into key contributors in various sectors of the economy.
Small backyard companies in America grew to be Fortune 500 companies listed on the Major Stock Exchanges. This phenomenon should be replicated in developing economies.
Companies must be natured from small informal structures to multimillion dollar firms and this has been the trend in the developed economies and other growing economies like China as well as other emerging economies like Brazil.
The ease of doing business should encourage the growth and development of the informal sector. The registration of informal businesses should be properly incorporated SMEs.
However the situation in Zimbabwe does not fully endorse this notion.
For instance, registration of a company cost an individual around $300 and a further $250 to register for tax. To fully register with all relevant authorities, it might take more than 6 months. The bureaucracy ladder one has to contend with all comes together to make it difficult for the informal sector to develop into anything beyond its informal nature.
Zimbabwe is ranked number 170 out of 189 countries on the World Bank doing Business rankings down from 2013’s rank of 168.
This is reflective of the gap that has to be bridged if the informal sector is to grow and develop into its full potential.
The Government should go an extra mile to encourage the growth and development of the informal sector through interaction and consultations from players within the sector in order to deal with the discord between Government’s poverty eradication and development initiatives and informal sector transformation.
Resource limitations call for the reassessment of the Real option of whether to recapitalize ailing industries or to grow the SME sector, some companies that have been struggling are faced with the reality of complete extinction, instead of wasting resources on failed industries it might side with logic to invest into growing and formalising the informal sector.
Government and private sector bailout projects should make a thorough cost-benefit analysis of the decision between recapitalisation of struggling businesses and initial capitalisation of SMEs.
With the greater part of the country’s population active in the informal sector it would be a move that defies logic not to put in place solid supporting legal regulatory, financing and technical infrastructure to encourage growth in the informal sector, broader policy initiatives should incorporate the informal sector, the Ministry of Small to Medium Enterprises should be at the forefront of this transformation and more visible and active than its current commitment to the Transformation of SME’s into IPOs.
Albert Norumedzo is an Equities and Alternative Investment Analyst who writes in his own capacity. Email [email protected]
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