Is the sun setting for Zim’s retail, wholesale sector?

Zimbabwe’s formal retail and wholesale trade sector faces an uncertain future, amid growing pressure on volume and viability, due to mounting competition from informal traders.

This comes against the backdrop where businesses in Zimbabwe often complain about the multiplicity of taxes and levies they pay in an environment fraught with other non-statutory costs that are also very high, including the cost of utilities such as water and electricity.

Lately, formal retailers have complained about several constraints impacting business viability, chief among them the unfair competition from informal traders.

Notably, this also comes at a time when consumers’ spending power has over the years continued to diminish due to high inflation and economic instability.

The negative impact of informal traders, commonly known as tuckshops, most of whom do not pay any taxes to the Government or comply with most statutory regulations, while they trade exclusively in US dollars, on the operations of formal retailers and wholesalers, is now evidently palpable.

Battling to keep their heads above water, the formal traders have either been downsizing or in extreme cases closing shop.

An executive with a leading wholesaler with branches across the country, said the prospects were bleak for the wholesale and retail sector in Zimbabwe in the short to medium term due to the uneven playing field.

“The environment is difficult for formal operators. Informal guys are in the same environment but they can avoid certain things and they can make decisions that formal (businesses) cannot given the legal constraints and the choice to abide by those legal constraints.

“Obviously, that puts the future of formal retailers and wholesalers in a not-so-good light. The question is ‘Is informality in that space sustainable’?” he asked rhetorically.

He noted this came against the backdrop where there is growing proliferation of fake products, tampering with measures and weights of products sold in the domestic market.

“The sustainability is questionable because there is a reason why in the first place some of those regulations were put there; to create standardisation, to protect consumers, to kind of regulate and create fair competition.

“If all of them are removed or not abided by, then I do not know whether what comes out of that will be sustainable,” he said, adding “At the same time you want Zimbabwean retailers and wholesalers to eventually export their services.”And to do that you gotta be formal surely in some sense so you can have your Shoprites, your Pick ‘n Pays, which are competing in the rest of Africa,” he said.

He said the middle class was expected to continue to grow in Africa, making a business case to invest in that space, which is driven by this segment of the demography across the world.”Already, we have a situation where some players have closed down, Bhadella closed down in downtown Harare, Bhadella closed down again in Mutare, although that was taken by OK, I guess that is okay.”

Then you have Muhammad Mussa shrinking and we have Metro Peech and its challenges under the new ownership. You see, that gives an indicator of a stressed industry. I am sure you have also seen the financial report from OK Zimbabwe, “ he said.

In the wake of the challenges in the retail sector, one of Zimbabwe’s largest retail chains OK Zimbabwe, indicated it had tabled a 10-year recovery plan for the business. Although recovery strategies yielded a 15 percent volume increase in the first quarter of 2024, the retail group said the customer count, however, shrunk by 10 percent.

One equities research firm, in its analysis of the retailer’s quarterly performance, said “In our view, OK Zimbabwe faces an uphill battle returning to profitable terrain as well as regaining market share.”

Among other things, the plan encompasses market development, brand repositioning and migration to a leaner operating model. The wholesale executive further corroborated market reports that a major foreign owned retailer operating in Zimbabwe was also facing serious challenges and contemplating exiting the domestic market or significantly downsizing.

“So, you now have formal manufacturers that deal exclusively through informal retailers.”Look, we are saying some of the requirements put on formal retail and wholesale business are not necessary given the evidence of informal businesses operating without them,” the industry source said.

“We are saying, let’s remove them and make it easy for everyone. What we need is a level playing field; with a level playing field we can see who is doing business well and who is not.

”Notably, growing informalisation may be one of the reasons the Government’s tax revenue is going down. The contribution of corporate tax income to total collections declined from 19 percent in 2020, 15 percent in 2022 to 10 percent in 2023.

The Zimbabwe Revenue Authority in its 2023 annual report, attributed the fall in corporate tax, one of the biggest tax heads and contributors to fiscal revenue, to the impact of growing informalisation.

Zimra said the informal sector now controls more than 60 percent of all economic activities in the country.”Retail and wholesale are big contributors to taxation through VAT,” the industry executive said.

This, apparently, explains the coterie of new taxes Finance, Economic Development and Investment Promotion Minister Mthuli Ncube introduced in his 2024 national budget to beef up revenues.

Confederation of Zimbabwe Retailers, which represents small and informal traders, president Denford Mutashu, said efforts were underway to formalise the operations of players in the informal sector, while acknowledging the threat the sector now poses to formal traders.

”We have started with a test case in Harare and we recently started to zero in on the tuckshops because of their prevalence and significance in light of the high informalisation.”Also, its a fact that they have become a major distribution channel that is being used by most manufacturers and suppliers who are chasing the US dollars.

”We have engaged them, they have become members of the Confederation of Zimbabwe Retailers in their entirety. We then started working with them towards conforming with all the statutory regulatory requirements in our quest to formalise them,” he said.

This led to engagements with various authorities that included the Treasury, the Zimra, banks and the Ministry of Industry and Commerce.

Mutashu said the small traders and informal operators related their challenges, expectations and requests to the Government with regard to formalisation and the fiscalisation drive. He said most of them had since been fiscalised for VAT purposes but noted the operators received some exemptions in terms of certain aspects of formalisation requirements.

“The request by 90 percent of these so-called informal traders, in terms of these tuckshops to be formalised, is that the Government comes up with a (more suitable) presumptive taxation model for them.”

They are not quite acquainted with the fiscalisation journey because it comes with costs or gadgets. They related that they moved from the threshold of US$$300 (tax threshold) to the current average of US$1 000, which was too high for most operators.

“The informal traders and tuckshops, who collectively move millions of US dollars worth of goods daily, given that several manufacturers now rely on them for distribution, prefer an entirely different taxation model. Mutashu acknowledged that many formal retailers were closing their businesses amid the growing competition for unregistered operators, making it urgent to formalise the informal traders.

“The tuck shops have become a huge and significant competition to formal players, who largely have been contributing to the fiscus and at the same time being exposed to all the regulatory requirements . . .

He said faced with strong competition stemming from informal traders, some large registered retailers had decided to downsize or close down completely.This, Mutashu said, made the case for policy measures that speak to the current scenario and dynamics in the market more urgent.-ebusinessweekly