Zim’s informal sector requires a paradigm shift for viable economic outcome

Zim’s informal sector requires a paradigm shift for viable economic outcome

0 0
Read Time:5 Minute, 6 Second

By Amanda-Ellen Jojo

ZIMBABWE’s informal sector has been a vital source of livelihood over the past decades, it is projected that between 80 to 90 percent of Zimbabweans are engaged in informal economic activities.

Despite the negative perception associated with the informal sector, it accounts for 40 percent of Zimbabwe’s Gross Domestic Product (GDP.)

Commenting on the perception of the informal sector in developing countries, Development Economist Prosper Chitambara said most governments have not provided support to the informal sector to facilitate transitioning towards formality yet the informal economy in most low-income countries constitutes the biggest segments of their economies. 

“There is need for a paradigm shift in terms of perceptions, attitudes displayed by governments in low income countries towards the informal economy they must see the potential that the informal economy has and then come up with ways and means of supporting the transition process towards formality.

“The strategy must also contain or address the key drivers of informality in the economy and obviously proffer action plans on how best the informal sector can actually be integrated in the formal economy.

 “Of course, some of it (integration) is already happening in terms of value chains across the economy in some cases we are seeing big businesses in the formal sector rely on informal traders for example for produce when we go to supermarkets a lot of agricultural produce actually comes from informal sector,” Chitambara told this publication.

He highlighted that there are a lot of opportunities for strengthening synergies between the formal and the informal that can actually become a basis for incentivising the formalisation processes.

In order to accelerate a growth orientated formalisation of the informal sector, Chitambara is of the view that a stable and sustainable economy will drive the shift.

“…a stable economy is critical even for the success of the informal businesses and for their formalisation we need a very stable macro-economic framework as well as an economy that is actually creating jobs, an economy that is growing inclusively so as to absorb a lot of the new labor entrance into the labor market,” Chitambara underscored.

Chitambara also called on government to incentivise the tax regime since it is quite burdensome and punitive.

He said: “Because of that, lot of businesses have decided to remain informal because there are essentially no incentives for them to formalise. One of the major reasons why we have a huge informal economy is the fact that growth is not delivered on jobs.”

However, in Zimbabwe there are ventures that are on a drive to formalise the economy, amongst them is Africa Investors Hub. The company is a catalyst link between the financial institutions, investors, donors and the informal traders for the financial inclusion.

Speaking to this publication Founding Director of Africa Investors Hub Noel Mavura said the Hub is spearheading the transition of the informal sector through the adoption of Know Your Customer (KYC) business documents which has a patent which will allow them to open a bank account and obtaining a tax clearance from Zimbabwe Revenue Authority (ZIMRA.)

“Our main objective is to tap the informal transactions which are not being banked. The move also aims to facilitate these businesses’ access to funding, training and marketing opportunities offered by different organisations,” Mavura explained.

Africa Investors Hub source its funding by spreading the word to investors and banks to give a lifeline to the informal traders in a form of recourse contract loan.

“In this aspect we usually work as a nonprofit making organization hence we don’t charge any fees from the financial institutions. In most cases will dilute the balance of our personal resources to oil these operations,” Mavura added.

Some of the challenges that Africa Investors Hub face in the formalisation quest are tied to financial institutions who are still clinging to the principle of requiring collateral assets before the disbursement of loans.

“This is one of the major drawbacks, be that as it may, we have some organisations which came on board to support the great initiative by rolling out some funds specifically from their portfolio,” he said.

To date, Africa Investors Hub has mainstreamed more than 5000 informal business and their goal is to formalise at least more than half a million businesses in Zimbabwe before extending their regional footprint in Southern Africa.

In order to guard against funds mismanagement in all their funded informal enterprises, the Investors’ Hub has a unique funds managerial system which is coupled by an innovation strategic implementation.

He said: “We have more than 100 trained mystery shoppers who secretly visit the funded businesses to capture the right information at the right time while the owner of the business is not aware.

“The mystery shopper will ascertain the correct information of the business and write all the details in a report. The reason of deploying mystery shoppers to the funded businesses is to eliminate lies and fake preparedness accompanied when a loan representative notifying of the visit. In short we capture them unaware.”

The other strategy they implement is allowing allow the loan funds to flow in a sustainable developmental way.

“This normally happens in such a way that when an informal trader A get funded, we automatically attach informal trader B to manage informal trader A because his/her funding is coming from the informal trader A in a given short space of time,” he explained.

Every week, Africa Investor’s Hub conducts business training meetings so as to refine the entrepreneurial skills of informal business operators and this has contributed to the successful formalisation of growth positioned informal businesses.

“We have also partnered with the Dubai Chamber of Commerce in Southern Africa particularly for business trainings as part of formalisation strategy,” he said.

 The long-term vision of Africa Investors Hub is to create generational wealth.

“Our vision is to benefit the Africans 60 years when we are not here on earth. We want to see African economies developing in a unique richly way. It is our desire to have an African footprint in the long run,” he remarked.


 

Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleepy
Sleepy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %

The Entrepreneurial Magazine 2021 © Powered by AdsOnly Zim