HomeBusiness DigestBurying informal sector creativity, enterprise

Burying informal sector creativity, enterprise

Alex T Magaisa

THE recent clampdown on the informal sector in Zimbabwe’s urban areas demonstrates a characteristic contradiction that defies logic: instead of resuscitating the capital that is locked a

way in the informal sector, the authorities are attempting to bury it. The informal sector is a direct product of the legal and economic conditions prevailing in Zimbabwe and unless those conditions are properly and comprehensively dealt with the recent clampdown will remain a superfluous exercise.

There are at least two ways of looking at the informal sector. Firstly, it is a reflection of the demise of the formal sector. Secondly, and more positively, it is a reflection of the creativity, entrepreneurial spirit and resilience of the people in the face of adversity. An appreciation of the second positive aspect is crucial to overcome the negative decline of the formal economy.

The strategy therefore should not be to wipe away the informal sector, but to harness its potential in a way that builds into the formalised structures.

Many theories have been articulated in attempts to explain the strategy taken by the government in recent weeks. As is so often with many things in Zimbabwe today, the discussion has invariably been placed within the framework of the human rights paradigm. In my opinion, we must also understand it from an economic perspective — that quite simply, as an economic strategy, the clampdown was based on the wrong premise and will not solve the country’s problems. It may wipe away the symptom temporarily, but the cause of the demise will remain untouched.

Perhaps we might try to understand this by exploring some ideas on the forces that create the informal sector. By definition, the concept of the informal sector assumes that there is a formal sector. The formal sector constitutes the core of the market that is legally recognised by the state and is subject to relevant laws and regulations. It is in the formal sector where one often finds an organised workplace and organised labour. Players submit to regulations, pay taxes to the state and rates to local authorities and are properly registered according to the laws that govern the creation and operation of business vehicles.

Therefore, everything else that falls beyond the formally recognised market falls in the informal sector — unregulated, no taxes, etc. But in both the formal and informal sectors there is an exchange of goods and services for economic value. But what really gives rise to the informal sector?

The World Bank has identified two forces that lead to an informal sector. Firstly, when ordinary people seek to survive in an environment where opportunities for income in the formal sector are scarce they resort to activities principally aimed at self-preservation. These people engage in survival activities.

It reminds me of the woman from Mufakose who used to do my laundry at Shingai Court a few years ago. She came twice a week cleaned my house and did my laundry for a fee. She was so good and trustworthy I entrusted her with my keys while I was at work and I became her referee when she looked for more informal employment.

When she could not make it on account of illness she did not send a sick note — she sent her son. This woman simply needed to survive and I admired her resilience and resourcefulness in times of hardship. I was persuaded to offer her a bonus each month.

Secondly, the informal sector also arises where people within the formal sector seek to avoid the regulatory framework of the formal system. The World Bank calls these illegal business activities. This is by no means a clear distinction, given that both the individual and the business entity may resort to the informal sector for purposes of survival.

I knew a fellow lawyer who took on clients beyond his formal employment. They did not exist on the firm’s books — he called it his “extra fee” which he said was useful for him to survive like a lawyer. Was this fellow also engaged in the informal sector? Indeed, sometimes what the WB may call illegality in business may also qualify as illegal if carried on by the individual who is seeking survival. An example of this could be trading foreign currency on the parallel market. Although the World Bank’s distinction may be hard and questionable, it nonetheless helps us to understand the conditions that have led to the proliferation of the informal sector in Zimbabwe.

Among other reasons, the state has approached the informal sector in the violent manner on the allegation that there is too much illegality taking place in that sector which is undermining the economy.

There is also the argument that the informal traders have no legal rights to be trading at the places where they have been because they lack title. The government fails to appreciate that the informal sector is not a self-generating project but one that arises firstly, because in the absence of chances in the formal sector, people have to find something to survive on. It is not disputed that the economy has regressed and unemployment is close to 80%. Among other direct causes is the closure of businesses due to harsh economic conditions and the decline in the commercial agricultural sector, which was a major employer during the heyday of commercial farming. Many of these people moved to the peri-urban areas, because they have no employment on the farms and do not have access to the land.

As Geoff Hill has stated in his work on Zimbabwe, the once wonderful education policies of the current government in the early 1980s produced a class of young men and women whose target was to work in the city. Every young person who passed five “O” levels headed for the city to find a job.

However, we did little to create the employment opportunities. How do you convince a man of 35 years who has computing knowledge and other technical skills but no job, to return to where he came from when his struggle was to escape that environment at all costs? Instead, he deploys his knowledge and skills to survival activities to enable him to cope with the conditions.

What Zimbabwe needs is not to destroy his structure where he is doing his work but to harness that potential into a force whose proceeds can be channelled into the formal economy. He may be willing to submit to the laws but there is no one interested because of lack of political will.

Then there is the issue of those in the formal sector engaging in so-called illegal activities to avoid state regulations. Perhaps many in Zimbabwe may identify with this particular type of conduct. We know that a number of businesses have been charged with trading foreign currency on the parallel market. Some commodities are being traded on the parallel market, etc.

In my view, the key question that authorities must confront is what forces are behind the movement from the formal to the informal market. The common assumption is that those who move into the informal sector are motivated by greed. Of course, greed may be a factor but could there be something more that we are not prepared to admit? That individuals are selfish is an accepted fact and even formal markets are no exception.

Perhaps another explanation could simply be that individuals in the formal sector seek earning opportunities in the informal sector because there may be something wrong with the legal framework of the formal sector. This may take place where there is excessive and unnecessary regulation, which makes trading on the formal sector impracticable because it brings no returns. People engage in formal business to generate income. The price that they are prepared to pay for the order and certainty of the formal market is submission to the laws.

However, if the laws become an impediment to business and when compliance to the formal markets results in losses, that bargain is impaired and the rationale course is to seek an alternative course. One option is to exploit opportunities beyond the legal framework, that is, in the informal sector. Otherwise the only other option is to close shop and engage in other activities. That is probably why there are formal companies engaged in the informal sector while others that cannot even find opportunities in the informal sector have chosen to wind up, introducing yet more players into the informal sphere. Thus the cycle continues.

In addition to the factors suggested by the World Bank, I would add that another permitting force for the growth of the informal sector is the failure to enforce regulations in the first place. It is not a cause as such, but a permitting force because if the state fails to enforce the regulations it creates conditions that enable the proliferation of the informal sector. The state sometimes allows this growth for political expediency. To the extent that the state permits the growth of this sector, it is also complicit in the breakdown of the law and cannot therefore claim a higher moral authority at a later stage.

Thus, while those challenging the state’s actions may face massive hurdles if they pursue the matter from a strictly legal perspective, their grounds of objection are stronger when grounded on challenging the moral authority of the state in such circumstances.

Finally, the informal sector is a product of the failure at the formal legal, economic and political level. The word “turnaround” is in vogue. Perhaps we have been turning around too much we are now so dizzy we cannot see the reality of our times. Part of this reality is the informal economy, which we must harness and not pretend to wipe away.

Recent Posts

Stories you will enjoy

Recommended reading