FINANCIAL services firm FBC Securities has warned that Zimbabwe’s expanding informal sector presents structural challenges to sustainable economic growth, revenue formalisation, and long-term industrialisation.
Last month, the Zimbabwe National Statistics Agency revealed that the informal sector has grown by 16,1 percentage points to 76,1%, revealing a shrinking formal space and acceleration of economic distress.
“While the informal sector is a vital shock absorber in the current environment of tight liquidity and contractionary policies, it poses structural challenges to sustainable economic growth, formalisation of revenue and long-term industrialisation,” FBC Securities said in its post mid-year budget review analysis.
The informal sector is estimated to be generating US$14,2 billion in revenue annually.
The securities firm said the informal sector is playing a significant role in the economy, acting as both a cushion against formal sector weaknesses and a challenge to effective economic management.
“The informal economy absorbs a large portion of the labour force displaced by limited formal employment opportunities, particularly in the wake of tight liquidity conditions and contractionary policies that constrain business expansion,” it noted.
“This sector is contributing indirectly to GDP (gross domestic product) through informal trading, artisanal mining, small-scale manufacturing, and transport services, which have been key in sustaining household incomes and urban survivalist activities.”
FBC Securities said the informal sector was providing employment and income generation opportunities, supporting domestic demand and reducing poverty vulnerability in a constrained formal economy.
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“The largely informal sector results in most activities being unrecorded. This limits the government’s tax base and fiscal capacity, thus undermining accurate economic planning,” it said.
“Additionally, its low productivity and lack of regulation contribute to market distortions, foreign currency leakages and reduced long-term investment, as informal businesses often lack access to formal credit and infrastructure.”
In its latest report, IH Securities said informalisation will probably persist and “we will likely see sustained pressure on corporate earnings and asphyxiation on the bottom line”.
However, the securities firm expressed hope in the government reducing regulations and thus the cost of doing business.
