Call to formalise the informal sector gets louder

ANALYSTS and key business players have implored Government to invest more in incentivising informal sector players to transition into formal businesses to enhance economic stability and improve tax revenues.

James Wadi, a tax expert and economic analyst, said this while giving an appraisal of the 2025 National Budget at the post –budget breakfast meeting, hosted by Business Weekly in collaboration with the Confederation of Zimbabwe Industries (CZI) and the Ministry of Finance, Economic Development and Investment Promotion on Monday.Zimbabwe car imports

Wadi highlighted that nearly 86 percent of businesses across Africa operate within the informal sector space and Zimbabwe was not spared from this growing business phenomenon in the continent.

As part of the incentives, Wadi said Government could develop pension schemes specifically tailored for those in the informal sector or implement social insurance programmes and other conditional incentives that become available upon registering.

Wadi said the authorities should come up with strategic approaches that focus on protecting the rights of informal sector entrepreneurs and this could involve ensuring the protection of their assets, thereby fostering an environment where business owners feel secure and valued.Zimbabwe car imports

He said adoption of this perspective would shift Government’s goal from merely extracting tax revenues to creating a business-friendly landscape that emphasises the benefits of transitioning from informal to formal operations.

Wadi expressed concern that economies characterised by high levels of informality are often perceived as high-risk environments by potential foreign investors.

This perception often deters investment, impeding economic growth and development noting that it is imperative for Zimbabwe to address the escalating trend of informalisation swiftly.Zimbabwe car imports

He argued that, without prompt and effective action, the country risks solidifying its status as a high-risk investment destination.

“We have talked about how do we reverse informalisation of the economy and when I did my research, I realised that informalisation is not only a Zimbabwean problem but an African problem. We should make the formal sector attractive for businesses to move from informal to formal even for issues like pension schemes for informal sector, social insurance schemes and other conditional incentives that are beneficial to the informal sector upon registering.

“From that perspective we would have moved away from an approach where we can only benefit from tax perspective but we would have put an incentive for business to transform.

“From an investor perspective , often times economies with high informality are viewed as high risk environment, so if we are to remain highly infomalised , investors will see our environment as high risk,” said Wadi.

Small to Medium Enterprises Association of Zimbabwe (SMEAZ) chief executive officer, Farai Mutambanengwe, said the Government’s influence in the economy is diminishing.

He called for innovative approaches to reclaim and strengthen the Government’s role in the business sector, indicating that it is possible to create a more conducive environment for entrepreneurship, which is essential for sustainable economic growth in Zimbabwe.

“I think it is important to note that there is deepening informalisation. In other words, Government sphere of influence in the economy is fast shrinking and creative ways should be found to redeem Government’s control over business.

“You must be encouraged to become legal but, in our economy, the situation forces you to informalise, over-regulation is continuing to perpetuate the problem.

“In a normal economy, regulations should encourage you to formalise because that is the way you become successful. For me, these are the main challenges that any budget must address,” he said.-bsinessweekl