Informal sector battles social conundrum

By Amanda Ellen Nicola Jojo

Zimbabwe’s economy is largely informal, with this sector accounting for the bulk of jobs created in the country and also contributing a sizeable portion to the gross domestic product (GDP), making it one of the backbone sectors of the economy.

The crux of the matter, though, is that for most workers in the informal sector, this is a survival tactic to eke out a living as it is driven by precarious conditions and limited opportunities, rather than a choice. They face numerous challenges, chief among them being the lack of social protection, which has become the most notable impediment in the informal sector.

Social protection plays a crucial role in attempts to end poverty and level inequality because it offers people access to important health care and financial stability throughout their lives.

The promotion of economic growth, the bolstering of labour force cohesion, the advancement of human development, and the improvement of social cohesiveness are further arguments in favour of national investments in social protection. According to the International Labour Organisation (ILO), due to shrinking formal employment, workers bear an increasing direct burden of safeguarding social security, which adversely impacts on their quality of life. 

For Shingirai Gadzikwa, an informal sector employee, saving for an uncertain and distant retirement often competes with the urgent needs of day-to-day life, which are perceived more urgent than an unknown future.

“The insecurity surrounding my future is overwhelming. Without legal contracts or access to social protection benefits, I feel vulnerable and unsure about my financial stability as I age,” she asserted in an interview with The Entrepreneurial Magazine. 

Gadzikwa is not alone in these circumstances as the majority of employees in the informal sector may connect to her story because they do not have access to retirement plans, health insurance, or social security. 
It comes at a time when the United Nations’ 2030 Agenda for Sustainable Development calls for countries to set targets related to expanding social security measures, including universal health coverage, comprehensive social protection systems, and access to basic services and social protections for the poor and vulnerable populations.

Against this background, Mayibongwe Justice Dube, the visionary founder of Atcumbre Publishers, underscored the need for more information and awareness about pension plans, a substantial impediment for his SME. 

“The distribution of information about these services is often inadequate, leaving people uninformed about their eligibility and the benefits they can receive.

“Another significant barrier I have encountered is the perception that insurance and pension plans are only for civil servants or those in high-income brackets. This misconception has prevented me from even considering these vital financial safeguards, as I wrongly assumed they were not accessible to someone in my position. 

“Overcoming this stigma and educating the public about the widespread availability of these services is crucial for increasing access and participation for people like myself,” Dube told this publication.

Without a safety net, he lives in constant fear of debt thus, the precarious financial situation forces him to focus solely on day-to-day survival, with little ability to save or invest for the long term, and he worries that his life may essentially ‘end’ the day he stops working, as he will have no reliable means of supporting himself.Dube said was not aware of initiative by the insurance sector regulator, the Insurance and Pensions Commission (IPEC).

“I was not previously aware of any reforms or initiatives from organizations like IPEC aimed at expanding insurance and pension coverage to the informal sector. As someone working outside the formal economy, this type of social protection has felt largely inaccessible and out of reach.

“Going forward, I plan to take it upon myself to research and understand any available initiatives from IPEC or similar organizations that could provide insurance and pension benefits to those of us in the informal sector,” Dube said.

In an interview with The Entrepreneurial Magazine, IPEC’s Public Relations Manager Lloyd Gumbo, highlighted the critical reforms the Commission has spearheaded to expand the insurance and pension coverage within the informal sector. 

“IPEC has taken steps to improve insurance and pension coverage for informal workers in Zimbabwe by issuance of the Microinsurance and Micropension Frameworks in 2017 to promote access to affordable insurance for low and irregular-income earners including the informal sector,” Gumbo said. 

He added: “As a result, IPEC licensed 11 dedicated microinsurance entities to offer insurance products that are easily accessible and affordable to the informal sector. We reissued the updated framework this year taking into account the emerging trends.

”The Commission also issued a Micropensions Framework in 2023 to promote access to retirement savings by the informal sector. The Framework provides for flexible retirement savings contributions by those with low and irregular income such as the informal sector.”

The 2019 IPEC survey found that low awareness of the importance of insurance and retirement planning is a key barrier to uptake in the informal sector.

“To address this gap, IPEC and other stakeholders among them, regulated entities, have embarked on various insurance and pensions awareness initiatives to educate the public, including the informal sector, on the importance of risk management and retirement planning. Some of the initiatives include leveraging mainstream and digital media, edutainment, gamification through the snakes and ladders game as well as seminars.”

In collaboration with the Insurance Council of Zimbabwe, IPEC has led the training of the Ministry of Women Affairs, Community, and Small and Medium Enterprise Development’s Business Development Officers on risk management for micro, small, and medium-sized enterprises (MSMEs).

These officers will subsequently train other ministry officials and MSME owners on effective risk management strategies.

“Informal workers often face significant barriers in accessing insurance and retirement planning schemes, such as low and irregular incomes, low levels of awareness about insurance and retirement planning amongst other challenges, which IPEC is working to address through various initiatives,” Gumbo said.

To date, IPEC has spearheaded targeted financial education initiatives to raise public awareness on the importance of risk management and retirement planning. Insurance and pension entities are also implementing various awareness initiatives to raise public awareness.   

“Furthermore, the Microinsurance and Micropension Frameworks allow for insurance and pension entities to develop appropriate products for the informal sector,” Gumbo told this publication.

Policyholders lost their savings when government ditched the Zimbabwe dollar in 2009, largely due to inflationary pressures. As a result of the loss of value during currency conversion, the majority of citizens have lost faith in insurance and pension schemes.

To deal with the issue of confidence, Gumbo said IPEC has crafted regulations to complete the compensation process.

“To restore confidence in the industry, IPEC is spearheading the pre-2009 compensation process while entrenching fair treatment of policyholders and pension scheme members through focused market conduct supervision. The Commission also issued directives and guidelines that protect the interests of policyholders and pension scheme members such as the Treating Customers Fairly Framework, the Expenses Framework and the Funeral Directive,” Gumbo said.

He continued: “IPEC monitors global innovations, selectively adapting relevant best practices to Zimbabwe’s context. Initiatives focus is on increasing coverage, improving user experience, and ensuring sustainability. 

“For example the financial inclusion agenda, a key focus for many jurisdictions, is also a priority area for IPEC to ensure access to formal financial products for the previously excluded, such as the informal sector.”

Economic analyst, Kudakwashe Munemo, highlighted that the severe lack of insurance and pension packages has far-reaching consequences for informal workers.

Munemo made a strong argument that extending social security protections to the informal sector could be extremely beneficial to both individual workers and the broader economy. 

“On the economic front, it essentially implies that the economy is exposed to the risk of low levels of productivity and capital investments from savings arising from premium contributions, especially in the event that the economic agents who constitute the majority of the workforce given how the country is largely informalised are not adequately equipped for derivation of maximum utility and are not tapped to also contribute,” Munemo said.

He added: “Socially, it contributes towards social and financial exclusion and widens the inequality gap that already exists between the haves (rich) and have nots (poor) in terms of access to critical services such as health, retirement planning and income security among others.

“Extending coverage helps the individual economic agents access essential services to include income security, retirement benefits and health, among others and has a trickle-down effect to the broader economy by enhancing productivity, competitiveness of products, increasing savings which may be channelled to the strategic sectors of the economy in need of capital and reducing the inequality gap through effective redistribution of resources.

”Pay-as-you-go pension scheme, National Social Security Authority (NSSA)’s spokesperson Tendai Mutseyekwa weighed in saying the State entity organizes workshops, seminars, coupled with teach-ins, and urban-rural to educate the public, employers as well as employees about the importance of social security and how to access their benefits. 

Roadshows and rural outreaches are additional measures taken by NSSA in the quest to continuously inform the public about their social security rights and options. 

“We recently established omni-channel contact centre to enhance public access to information and real time assistance through voice and email. Additionally, NSSA leverages a self-service portal to reach employers and contributors allowing them the liberty to register and update their employment history,” noted Mutseyekwa.

NSSA, in partnership with the International Labour Organization (ILO), has observed several key innovations in the insurance and pensions industry that are impacting informal workers, such as the development of microinsurance products and the expansion of pension coverage.

“The NSSA initiative improved food markets in Bulawayo, Chinhoyi, and Chivhu. During COVID-19, NSSA focused on the informal sector, providing information on hygiene, workplace surveillance, and social protection needs to combat the virus. NSSA also raised awareness of occupational safety and health systems to develop social security schemes for the informal sector,” he said.

Furthermore, according to Mutseyekwa, financial literacy is essential for workers in the informal sector to make knowledgeable decisions regarding pension and insurance plans. 

“Economically active citizens are entitled to social security, which serves to mitigate various life cycle risks they might face throughout their lives. Informal workers face a higher risk of income insecurity due to illness, accidents, or economic downturns. 

“Social security is designed to provide income replacement to mitigate lifetime risks and difficult periods such as retirement, disability, or unexpected events.”

In addition, Mutseyekwa stated that NSSA was developing a program for workers in the informal sector as part of its endeavors to build an inclusive social security system that offers them financial stability.

“NSSA engaged the Tripartite Negotiating Forum (TNF) through our parent ministry, Public Service, Labour and Social Welfare, to ensure that all the NSSA tripartite is well acquainted with our objectives.   

“The next stage will be a needs assessment survey that will contribute towards the scheme’s design. The survey, which will be done in collaboration with ZIMSTATs, is expected to commence within the first quarter of 2025.”