Will Government’s effort to address informalisation work?

IN a bid to stem the tide of economic informalisation, the Zimbabwean Government last week announced a series of additional measures designed to promote formalisation and tax compliance in a rapidly changing business environment.

The measures, which were outlined during a high-level session chaired by President Emmerson Mnangagwa and later expounded by Finance, Economic Development and Investment Promotion Minister Mthuli Ncube, come amid growing concerns over the informalisation of the retail and wholesale sectors.

Later in a communique, Mthuli underscored the Government’s commitment to level the playing field between formal and informal businesses. “In conclusion, the Government is committed to improving the business environment, in order to curb the informalisation of the economy, as we move towards Vision 2030,” he said.

The minister’s remarks come on the heels of significant economic reforms initiated in previous budgets, including a revised VAT registration threshold and the introduction of point-of-sale mandates for micro and small enterprises (MSMEs), that have become major economic players in Zimbabwe.

Since 2021, Zimbabwe’s economy has grown at an average rate of 5,5 percent per annum, a growth trajectory that was slightly tempered by a 2 percent slowdown spiral in 2024 due to El-Nino-induced challenges in agriculture and electricity generation.However, the increasing prevalence of informal trade particularly in the retail and wholesale sectors has raised alarms among policy makers. The trend has been exacerbated by manufacturers bypassing traditional distribution channels and selling directly to customers and informal retailers, thereby sidestepping regulatory obligations such as tax payments, licence fees, and labour laws.

The additional measures announced aim to counter these challenges. Among them are mandatory use of point-of-sale machines by all informal traders, adoption of international best practices on tax payment and efforts to discourage manufacturers from supplying directly to the informal market.

In a further bid to enforce compliance, the Government plans to establish a Domestic Interagency Enforcement Team tasked with collaborating with local authorities on licensing and enforcement processes.

Economists have offered varied perspectives on the practicality and potential impacts of these measures, particularly given the country’s deeply entrenched informal economic practices.

Dr Prosper Chitambara, an economist, expressed cautious optimism about the proposed reforms.

“These measures are designed to level the playing field,” Chitambara noted. “For too long, formal traders have been competing with informal operators who do not bear the same regulatory and fiscal burdens. Through enforcing compliance and discouraging direct supplies to the informal market, the government is providing much-needed relief for legitimate businesses.”

The new policies could restore a degree of competitive fairness, ensuring that formal sector businesses are not unduly disadvantaged by unfair competition. Mandatory point-of-sale machine usage could lead to greater transparency in transactions, making it easier for tax authorities to track business activities and curb tax evasion.

“This is a step in the right direction. It will help create a more orderly market environment, which is essential for sustainable economic growth,” he said.

Not all experts share this optimism. Gladys Shumbambiri-Mutsopotsi, a prominent economist, warned that the success of the new measures might be hampered by endemic corruption and the sheer scale of informality.

“The policies sound robust on paper, but the reality is that the informal economy is deeply embedded in our society,” Shumbambiri-Mutsopotsi remarked.

“Even with the new regulations, corruption among those entrusted to monitor and enforce these measures could undermine their effectiveness. We must be realistic about the challenges in monitoring a sector that has grown too large and too ingrained.”

While formalisation is a laudable goal, the structural issues that fuel informality, such as bureaucratic inefficiencies and lack of trust in Government institutions need to be addressed simultaneously.

“Without addressing corruption and ensuring that enforcement mechanisms are transparent and accountable, these measures may not yield the desired outcomes,” she added.`Adding another layer to the debate, Tinevimbo Shava, an economist with a focus on macroeconomic policy, cautioned about the operational challenges and potential unintended consequences of the new enforcement regime.

“One of the immediate concerns is the need for more manpower to police the informal sector,” Shava said. “Deploying sufficient resources to effectively monitor compliance is critical, and this will require significant investment in human capital.”

Threat of potential inflationary pressures resulting from increased compliance costs also looms.

“When you enforce strict regulatory measures, there is a risk that the cost of doing business will rise. These costs may eventually be passed on to consumers in the form of higher prices,” he explained. “If enforcement leads to increased prices of goods, we could see an inflationary impact that might hurt the very consumers these measures are meant to protect.”

The Government’s announcement of these additional measures has sparked a broader discussion about the future of Zimbabwe’s economic landscape.

With a commitment to initiatives such as automating tax administration systems through the Tax and Revenue Management System (TaRMS) and the Fiscalisation Data Management System (FDMS), as well as launching the Targeted Finance Facility (TFF) to support key sectors, authorities appear determined to modernise and formalise the economy.

Mthuli’s clear statement on Government resolve: “Government is committed to improving the business environment, in order to curb the informalisation of the economy, as we move towards Vision 2030”, serves as both a call to action and a reassurance to investors and stakeholders that meaningful reform is underway.

However, as economists like Chitambara, Shumbambiri-Mutsopotsi, and Shava indicate, the path forward is fraught with challenges. The success of these measures will depend on effective enforcement, adequate resource allocation, and a transparent regulatory framework capable of withstanding the pressures of a deeply informal economy.

As Zimbabwe continues its journey toward Vision 2030, the balance between regulation and market freedom will remain a focal point of debate among policy makers and economic experts alike.-ebsjensweekl