HomeOpinionCovid-19, policy reactions hurt the informal sector

Covid-19, policy reactions hurt the informal sector

BY TINAYEISHE MATAVIRE

IF there is one thing that 2020 and 2021 taught us — it is that radical change cannot always be seen coming and, like technology, it can be disruptive. The advent of Covid-19, its variants and the all-round effects that it has had on Zimbabwe economically, socially and politically came as a shock to everyone and economically adjusting to these changes has been a challenge.

The pandemic came with operating restrictions since March 2020 and these, although necessary and justified, have led to depressed earnings in non-mineral exports, hospitality, trade and transport sectors.

Sales of manufacturing and services firms in July 2020, just after the series of indefinite lockdowns, were about half compared to sales in 2019.

A positive productivity trajectory had started to show in the manufacturing sector as per the data released by CZI, which showed that Zimbabwe’s capacity utilisation in 2020 increased from approximately 36% to 47% between 2019 and 2020.

Given the chance, the manufacturing sector was promising to boost even more and at a faster rate but these hopes were derailed and slowed down by the coming of the pandemic.

The most recent 2021 lockdown restrictions have included a cut back on operations of all businesses but mostly the informal sector, which is accountable for more than 60% of Zimbabwean economic activity according to the IMF 2018 study.

The “centre of informal trading” commonly known as “Mupedzanhamo” has been officially shut down due to the resurgence of Covid-19 infections. These lockdowns, which were and are still being imposed for the safety of the people, are hurting both the formal and informal sectors showing that what is socially healthy may not necessarily be healthy economically.

Risks presented by Covid-19

The occurrence of Covid-19 has made informal business people susceptible to a number of risks and decisions such as engagement in illegal operations, business closure, operating with high exposure to the virus and partaking in corruption.

The informal sector should not be undermined because effects on it will cause a chain reaction in the economy and it also largely affects the parallel market, which contributed approximately 40% of GDP before the pandemic struck.

These difficulties being faced by the informal sector have therefore been seen to negatively affect the rest of the economy resulting in unemployment, lower standards of living and closure of some businesses.

Cost  of  living

Cost of living has been reported by Zimstat to have risen as of March 2021 from ZWL$26 560 (US$320) for a family of five and this is higher than that of the lowest paid civil servant who earns ZW$17 000 (US$205) per month.

In this current pandemic era, the civil servant may be in a better position because their pay check is to a greater extent guaranteed to come through, unlike profits from informal trading. The high cost of living is thus weighing heavily on those that are earning a living by and through the informal sector.

Inflation and exchange rates

Commendably the exchange rate has been relatively stable and inflation has significantly been reduced from the very high level it had been soaring at, 837,5%, in mid-2020 to a relative low of 161,9% in May 2021.

The current exchange and inflation rates, although lower, are still very high especially from the cost of living perspective. The cost of living is also being propelled up by the increase of fuel prices in USD terms. This phenomenon has always been known to increase the general price level and one way by which this happens is through increased production costs, transport costs, amongst others.

Consumption and poverty lines

Direct beneficiaries from the informal sector have lived on hand to mouth basis, therefore the shutdown of their work stations and down scaling of their process came with a substantial reduction in standards of living.

Zimstat has reported that total consumption poverty lines have increased by 6,8% and the food poverty line has increased by 1,7%.

Unemployment

The unemployment level rose from 5,02% according to International Labour Organisation (ILO), which was already higher than the safe unemployment rate of 4%, to 5,73% in 2020 and it is estimated to increase to above 6% by end of 2021.

This escalation in unemployment is said to mostly be due to struggling businesses that are down scaling through retrenchment or failing ones that are completely shutting down. These people that are victims of circumstances are left with no choice but to also join in the informal sector despite its struggles too. Where would you find formal employment in a nation with an increasing unemployment rate?

This is then resulting in the crowding effect in the informal sector. If baking cakes is what seems to be working for others, then everyone will eventually join in but who then will buy?

However…

In as much as the government imposed lockdowns have not been economically healthy, they are needed to curb the spread of the virus, Covid-19. Efforts by the government to ensure safety of its population should not go unapplaud.

Centre for Disease Control and Prevention (CDC) has ranked Zimbabwe among the top six international countries with the lowest Covid-19 cases and fatalities. This good record is also owing to the adherence of the Zimbabwean populace to the Covid-19, lockdown regulations and the vaccination drive in Zimbabwe, which has seen 3% of the population being fully vaccinated compared to the 1% for the whole of Africa.

Policy applicability questionable?

Now that we know though that such risks can occur, we need to pull up our socks in making preparations for occurrence of such unforeseen occurrences. People’s savings can only take them so far and this is evident from the Zimstat Covid-19 monitoring report, which stated that the proportion of people that have been able to purchase basic commodities from the first lockdown had been on average passable but as the lockdowns were extended it has been unfavourably decreasing.

The government has put in place a number of useful measures to manage and curb business risk as well as stop the Covid-19 pandemic. The measures include but are not limited to telecommuting popularly known as “working from home”, increased use of ICT facilities, streamlining public transport and closure of borders to private travel but with flexibility for commercial imports and private unaccompanied imports.

These measures are effective. However, they are mostly for the formal sector and can be seen as crippling to the informal sector.

Unlike formal traders, informal traders are highly mobile and do not usually have an orthodox office and desk work space. The work stations that they do have were then put out as hot spots for the pandemic thus, where structures had been put up, they have been demolished, e.g. Mbare “kumatuckshop”.

Misika (markets) are no longer permitted in the streets of Harare and the corners that parallel market informal traders used to stand on are no longer safe for them due to police raids. Yes, people have been taken off the streets but has the problem been solved? What is the alternate plan on their income generating streams?

Streamlining public transport is a very orderly and safe system that the government implemented, however the system is proving to be flawed on resources. Shortages of Zupco buses and commuter omnibuses are seeing informal traders having to struggle for transport, thus increasing their monetary and non-monetary cost of trading and living.

The intentions of the authorities may be defensible from the perspective of Covid-19 safety regulations but are these actions bringing solutions to the livelihood of the 85% of the country’s total number of workers, the informal workers.

One informal trader then posed a question, “what is better, to stay at home, starve and die of hunger with my family or to risk going out to hustle and bring food home? Kusiri kufa ndekupi (which loosely translates to ​we are all going to die anyways).?”

It is therefore important for the government to take a closer look at the policies in place and their application to the informal sector.

One way of lessening the effect of business risk or unforeseen occurrences on the informal sector is to prepare for them and this is a responsibility not only to the government but to the nation at large because it requires collective effort.

A good starting point would be to invest more in business risk occurrence research, regression analysis and forecasting. This research would help in forecasting possible shocks, their effects on the informal sector and the other economic variables and sectors they would likely impact.

After adequate research has been done, the next step would be to set up a business risk/ unforeseen occurrences framework which would ideally be set out in legislation.

The objectives of this framework would include the identification, measurement and disclosure of business risks on the informal sector and beyond but also their management by the government and the population at large.

The management strategy and sector specific roles should be defined in a public document and comprise principles and requirements for taking over certain risks, guidelines on prevention and mitigation approaches, and indication of how business risks and their stress tests will be considered in relevant policy formulation.

Commendable efforts have already been put in place by the government and other humanitarian organisations in coming up with emergency relief funds and food to assist vulnerable families.

For example, the Zimbabwe Crisis Response Plan 2020 — 2021 by the International Organisation for Migration (IOM), which seeks to ensure that humanitarian protection and assistance needs are met through the provision of timely, multi-sector interventions, while simultaneously addressing the root causes of vulnerability related to natural hazards and food insecurity, thereby building resilience to future risks in Zimbabwe.

These efforts, although great and very effective, need reciprocation from all sectors of the economy, including and especially the informal sector since it is the major sector in the economy of Zimbabwe.

Heads need to be put together to come up with ways in which future risks are minimised and possible negative impacts of unforeseen occurrences are reduced or even better, wiped out.

Matavire is an economics graduate from the Midlands State University and is currently studying towards her Masters in the same. She is a seasoned researcher and skilled in regression analysis, forecasting and economic modelling. Her areas of interest include, but are not limited to Macro econometrics, health and monetary economics.

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