‘Protecting formal businesses not Government duty alone’

ECONOMIC experts have called on businesses to operate legally and refrain from profiteering through cheap supplies to the informal sector, which creates an unfair playing field for formal traders.

The Government has also been urged to intervene to address the issue of unfairly low prices offered by informal businesses and the impact of smuggled goods, which find their way into local shops.

The unregulated nature of informal sector operations presents numerous challenges to formal businesses, while the Government struggles to collect tax for national development.

Former Zimbabwe National Chamber of Commerce (ZNCC) Matabeleland Chapter vice president, Mr Louis Herbst, said that in evaluating the prevailing retail landscape, it is clear that the formal sector often finds itself navigating a complex duality. Retailers aim to operate within a legitimate framework while simultaneously benefiting from the lucrative margins arising from informal trading practices.

He said this dichotomy complicates the discourse surrounding the necessity of safeguarding the formal sector, as it requires a commitment from these businesses to eliminate practices that undermine their sustainability.

“Protecting the formal sector is not solely the responsibility of Government intervention and regulatory oversight. It demands a proactive commitment from businesses within the sector,” said Mr Herbst.

“This includes ceasing the troubling practice of offloading expired or inferior goods into informal markets — an action that they decry while simultaneously engaging in.

“For a genuinely competitive environment to flourish, it is essential to enforce stricter penalties on wholesalers and retailers found exploiting the system.”

He said such measures would serve to deter unethical practices that compromise consumer trust and threaten the viability of legitimate traders.

Additionally, Mr Herbst highlighted that retailers, along with fuel suppliers, have historically leveraged fluctuations between the US dollar and local currencies such as the Bond, RTGS, or ZWL for significant profit gains. In this scenario, he noted that profitability has shifted from being product-centric to being largely dependent on currency manipulation.

“Retailers have been known to achieve profit margins exceeding 150 percent through such practices, while margins on essential goods like fuel or bread often hover around a mere 15-20 percent,” he said.

“As the market stabilises due to Government initiatives, the decline in retailer profits is increasingly attributed not to the quality of goods sold but rather to the diminished ability to exploit currency fluctuations for inflated gains.”

Mr Herbst stated that retailers face standard profit margins that may threaten their operational viability.

Consequently, some retailers may find it strategically advantageous to consolidate operations by reducing staff and temporarily closing branches. This approach allows them to assess the long-term sustainability of Government policies over a six-to 12-month horizon, particularly when efforts for modest monthly returns may not justify ongoing expenses.

“It is crucial for retailers and industry stakeholders to rationalise their operations and adopt a more principled approach to business,” said Mr Herbst.

“This entails moving away from practices that exploit consumers and circumvent Government policies for short-term monetary gain.

“The concerning trend of offloading expired or substandard products into informal markets not only complicates the retail landscape but also undermines the integrity of legitimate traders. This unethical behaviour must be addressed with robust policies and enforcement mechanisms designed to uphold market integrity.”

Moreover, Mr Herbst stressed that vigilance over wholesalers is critical to preventing them from diverting goods to the informal sector under the guise of business closures.

This manoeuvre allows them to significantly reduce overhead costs while potentially enhancing profit margins.

For instance, he said a wholesaler might find it strategically beneficial to close several branches and redirect products to the informal market, thereby avoiding expenses related to licensing, taxes, and other operational costs such as Zimbabwe Revenue Authority (Zimra), Pay-As-You-Earn (PAYE), Zimbabwe Manpower Development Fund (ZimDef), National Social Security Authority (Nssa), and local council fees.

“Such actions only exacerbate the challenges faced by legitimate businesses and further erode market integrity,” said Mr Herbst.

“While the informal sector can serve as a necessary survival mechanism in certain scenarios, it is essential to recognise that, in many cases, the driving forces are profit and opportunism rather than genuine necessity.

“This reality calls for a thorough examination and restructuring of the informal market to ensure its operations align with ethical standards that promote fair competition and support the formal sector.” —@SikhulekelaniM1