No substitute for thriving formal industry

ZIMBABWE’S focus should be on reviving formal industry as opposed to channeling resources towards growing the informal sector, a top economist says.

Taurai Mangudhla

This comes after Finance minister Patrick Chinamasa last week said the informal sector, which according to 2013 national figures contributed 20% to the country’s GDP, was key to economic growth going forward hence the need for support to the sector and introduction of measures to collect tax.

Econometer Global Capital (Econometer) head of research Takunda Mugaga said government needs to grow formal industry which drives real economic growth.

He said the booming informal sector was a symptom of the growing unemployment crisis.

“No economy can be built from an informal base, you need thriving formal industry, you need space for geniuses at universities and colleges, you need business establishments which attract foreign capital and all those are not found in the informal sector,” said Mugaga in an interview.

“The only option is to grow the formal sector. The reasons why Nigerians are scattered in every part of the world is that a military regime in the past made Lagos a flea market and in the process everyone was found fleeing away.”

Mugaga said Chinamasa had failed to acknowledge that the informal sector dominance was a response and not a creation.

The economist said government faced an uphill task collecting taxes from the informal sector.

He said the informal sector feels let down by government because it did not come up with policies that promoted job creation.
According to June 2013 statistics, about 3,7 million people in Zimbabwe earn a living through activities in the informal sector.

A visit to Glen View 8 informal industry complex showed business was low with most operators failing to move their huge stocks.

Thomas Shava, a middle-aged craftsman in the complex and part of a four-man family cooperative that manufactures bedroom and lounge suites, said the business was hamstrung by the current liquidity crunch which has seen the traditional big industry closing shop or making massive job cuts.

“Before the liquidity crisis, we could sell at least a lounge suite plus kitchen unit and bedroom suit a week, but now we can sell one of the above items the whole week,” he said.

“Not only have product volumes dropped, but we have also been forced to cut prices significantly to the extent we end up selling a lounge suite for US$200 after incurring cost of maybe US$170 for the set,” he added.

Touts, most of who have moved from the Mbare area after a police blitz, have become a problem at the informal industrial complex.
Shava said the touts have a tendency of overpricing merchandise, harassing customers and hijacking customers.

Rudo Moyo, a 28 year old merchandiser said, touts were a big threat to her business.

“At times they overprice products and scare away buyers. They take buyers to a few shops where they get huge cuts which some of us can not afford so we hardly sell anything,” she said.

Moyo pays craftsman to make different products which she then sells. She said her business has been hard hit by tight liquidity.

“We hardly sell anything to the extent we sell a lounge suite for US$180 just to recover our costs and feed the family,” she said.
“We hope the tobacco farmers get a good harvest and we can make big sales when the tobacco selling season opens in March, but again we are not sure what these touts will do.”

Zimbabwe’s informal sector growth has caught the attention of banks that are beginning to tailor-make products that meet the demands of the sector.

Last month, ZB Bank unveiled a US$1 million interest free loan facility for informal traders. The facility allows the traders to access between US$100 and US$500 which is payable over a week. The move is expected to attract US$5 million worth of deposits from the informal sector by the end of the first half of this year.

Meanwhile, the formal sector is on its knees with average industry capacity utilisation at 39% in 2013 down from 44% prior year according to the Confederation of Zimbabwe Industries (CZI).

CZI president Charles Msipa this month said the country requires US$8 billion to turnaround industry.