adminButler Tambo Economic Focus
Introduction
ZIMBABWE’S informal sector is growing in line with the rate of unemployment, as people seek ways to sustain themselves.
People resort to this sector because the barriers to entry and the technical expertise needed to run an informal business are minimal.
Independent economists say Zimbabwe’s unemployment rate is at over 80 percent but ZimStat puts it at 10,7 percent arguing that most people are now employed in the informal sector.
It is estimated that more than 300 000 students are churned out of schools, colleges and universities every year to join millions already unemployed.
Economists admit that unemployment in Zimbabwe has become so high that it’s a social curse to Zimbabwe.
It’s really a cancer in Zimbabwe, more serious than the liquidity crunch.
Besides the cutthroat competition, the vendors have to endure endless cat and mouse battles with both council police and the Zimbabwe Republic Police, who appear determined to bring sanity on the streets where the law of the jungle now rules.
Bulawayo streets are a typical example of the dangers of an unbridled informal sector. Because the informal sector is not answerable to anyone, it thrives on chaotic governance.
Challenges facing informal traders
Although the informal sector is a very varied and heterogeneous sector operating in a number of fields and providing goods and services at low cost and within the reach of the consumers, it comes with its own problems.
Mupedziswa (1991) posits that most of these problems emanate from their small size which restricts them from benefiting in a number of ways such as economies of scale and even lack of security for them to borrow loans. There are several constraints which are negatively impacting on the informal/street traders. Some of the main challenges include:
1 Lack of access to financial services such as credit and savings – The biggest and probably the most dominant constraint faced by the informal business sector is lack of finance which is very much needed to bear possible losses. It is difficult to obtain credit from the formal financial sector such as banks due to lack of enough collateral (Adisu, 2006). Literature provided by Kashuliza (1993) maintains that all financial institutions in developing nations share a common characteristic of considerable amount of default rate. Consequently, Adisu (2006), states that informal traders are therefore forced to resort to informal sources of credit such as money lenders (loan sharks) who charge them exorbitant interest rates that they cannot easily repay or cannot afford to repay at all. For instance, Zimbabwe’s microfinance institutions (MFIs) doled out $170 million worth of loans to clients in the first quarter of 2014 with the bulk of the funds going towards domestic consumption. The productive sector only accessed $48,92 million with $121,08 million going towards domestic consumption where more than 180 000 people got the loans. However, the sector is threatened by a high default rate as hundreds of Zimbabweans continue to lose their jobs every month. “Delinquency levels in the microfinance sector have remained high as reflected by the level of Portfolio at Risk (PaR > 30) ratio of 27,14 percent as at 31 March 2014. The high par ratio is largely attributed to multiple borrowings on the background of high interest rates. Kirsten, et al. (2006) holds the view that some informal traders are discouraged from borrowing by the fact that their future earnings are usually less than the value of the assets (collateral). Another simple reason for these small informal businesses not getting financial support is that they are not registered and this makes it very difficult for the willing financial organisations to reach out to them as they do not know where to find them.
2. Relationships with police are always strained, especially law enforcement agents who are viewed as antagonistic to informal trading as they confiscate the vendors’ wares.
3 Tense and frustrating relationships with local municipalities, especially where informal traders’ goods are constantly being confiscated and impounded (whether correctly or otherwise);
4 Suspicions and frustrations by informal traders due to site allocations and the function of processing permits by municipalities; hence unhealthy co-operation between authorities and informal traders – Areas designated for street trading are in most cases not ideal for street traders. Street traders’ business threshold is along the street, street intersections and interchanges. People who buy the goods and services are the passersby. Street traders complain about being allocated areas where there are no customers, and tend to move away from such areas if there is a shortage of customers. Customers buy the products because they are on their way to work or another destination. Since customers are not willing to walk a long distance to get the products or service, the main advantage of the street traders is their location in areas with high traffic volumes. Other street traders complain about being located far away from their residential areas, which increases their transportation costs and reduces the revenue they make.
5 Unattended children on street pavements – Female vendors have to contend with rearing their children especially the babies and toddlers on the streets and because most of them cannot afford the services of a maid or day care centre which will charge them an arm and a leg to look after the children while they sell their wares on the streets of most cities and towns, these people are forced to bring their children to their vending stalls and these children play on pavements and even sleep on the same pavements. This sad reality of children growing up on the streets can have far-reaching social consequences as the children are vulnerable to bad weather, disease, malnutrition and even such heinous occurrences as rape and physical molestation by other older children and delinquent adults.
6 Health hazard and City Hygiene – Trash of green mealies, banana peels, rotting vegetable matter has become an eyesore in Harare and Bulawayo. A survey by the researcher revealed that almost every street corner has become a disgusting sight, as vendors leave garbage everywhere once they have finished selling their wares or when running away from municipal police officers. Most of the vendors make no attempt to deposit their litter in bins or clean the places where they operate at. However, vendors also blame consumers for failing to deposit litter in the few bins available in the city after buying their commodities and the city council for not providing enough bins around the city. The other question outside of blaming the vendors for littering the city is whether the cities have enough dustbins for litter to be deposited into. Most of the vendors do clean up their areas of operation before they start their vending activities though very few if any clean up after their evening sales. The litter left by the vendors exposes Bulawayo residents, who throng to buy the wares, to waterborne diseases such as cholera and typhoid, especially during the rain season.
7 Pavement and street blockages by vendors – At around 5pm, most of Bulawayo’s street pavements are almost completely blocked with vendors selling their wares, making it virtually impossible for pedestrians to manoeuvre their way home after work and this has made most pedestrians to complain that the congestion leaves them vulnerable to pick pockets.
8 Taxation of vendors by Zimra – The Government intends to introduce daily levies for all informal traders in Harare and then spread it to other towns and cities along with a crackdown on vendors operating from undesignated sites, in an aggressive cash collection push amid tightening State revenues. In a meeting held sometime in July 2014 in Harare it was agreed that all vendors — including those who sell mobile phone credit vouchers — should be registered and made to pay a $1 daily levy, while flea market traders pay $2 every day. The funds would then be deposited with Treasury at the end of each day organisations like Zimbabwe Chamber of Informal Economy Associations (ZCIEA) which represent most vendors in Zimbabwe have agreed to pay $1 per vendor a day to local authorities in order to secure a permanent stay on the streets and uninterrupted vending activities. This is the reality of Zimbabwe’s economy. This is the state of the economy that has been replicated across the southern African nation’s towns and growth points. This state of affairs is a factor of a decade-long economic crisis that effectively shrunk the formal sector to such a point that re-establishing the formal economy will not be as easy as everyone would wish. Because the informal sector is neither taxed nor monitored by government nor included in the gross national product (GNP), which is the market value of all products and services produced in a year by a country, it has been one of those areas the Zimbabwe government has had serious challenges trying to control.
In 2000, Zimbabwe’s informal sector was estimated to be worth $4,2 billion, representing 59,4 percent of GNP. And with formal employment having shrunk to a measly 10 percent it is no longer clear what the exact size of the sector is today. To date, there have been estimates that as much as $7 billion is circulating on Zimbabwe’s streets outside the banking system and the State and business has found it to be a nightmare trying to tap into this huge chunk of cash what with the current liquidity crunch.
- To be continued
Butler Tambo is a Bulawayo-based Policy Analyst who can be contacted on [email protected] or +263776607524 or by liking the Facebook established to strengthen Zimbabwe’s transportation connectivity both internally and externally.
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