Zimbabwe National Budget: Focusing on the Informal Economy and Marginalized Groups –Towards Enhanced Support and Reduced Marginalization

By Anonymous

“Nyika inovakwa, igotongwa, igonamatigwa nevene vayo/ Ilizwe lakhiwa, libuswe, likhulekelwe ngabanikazi balo”,

Zimbabwe’s Informal Economy

The informal economy is part of a Nation’s economy that is neither taxed nor monitored by the government. The informal economy includes the retail market, black market, vendors, and informal cross-border trading (ICBT). The informal economy is known to be marginalized and lacks support as the sector is not normalized and is considered illegal lacks recognition, lacks protection, and has little to no benefits. The rise of the informal economy of Zimbabwe historically dates back to when the country adopted and implemented the Economic Structural Adjustment Programme (ESAP) which later was not as successful and, this situation was further exacerbated by the Covid-19 pandemic as well as the economic hardships in the country.

The informal sector in Zimbabwe has been viewed and described as the “pool” of entrepreneurial talent that has been seen to fuel the economic growth of the country.  The World Bank asserts that ‘Zimbabwe is home to one of the world’s largest informal economies, where about three-quarters of all employment is informal’. Statistics by the IMF in 2018, estimated that almost 5.2 million people are in the informal economy, and most are women.  This shows that the informal sector should expand since it is just as important to the expansion and improvement of the economy as a whole.

The causes of an informal economy and its increase is due to unemployment, migration, poverty, and gender inequality among many other causes. The informal sector emerged as another desperate measure for generating income during the economic crisis of 2000 to 2008. There is a significant amount of rural-to-urban migration in Zimbabwe due to poverty in rural areas, however, this migration does not result in opportunities, and this causes the migrants to resort to informal activities, most end up resorting to various economic activities in the informal sector for their survival. Chen, Vanek & Car, express that the informal economy comprises those who are self-employed who work in small, unregistered businesses, and wage workers who work in insecure and unprotected jobs.

The informal economy in Zimbabwe has been characterized by difficulties, is risky and insecure for most as there is not much protection for them especially for women. It is of great importance to prioritize the informal sector in the National Budget. The inclusion of the informal sector in the budget ensures that the sector is normalized and recognized as essential in the development of the country. The National Budget is crucial and has to be inclusive, and gendered and ensure that strategies are put in place for the protection of the informal economy. 

Zimbabwe National Budget 

A National Budget is an important tool for assessing the nation’s economic objectives. It allocates resources to various sectors in order to ensure the development of the nation. The Zimbabwe National Budget places emphasis on infrastructure, resource allocation, value chains, social protection, and human capital development. The budget serves as a crucial tool for allocating resources, maintaining fiscal discipline, promoting transparency and accountability, and ultimately driving the country's desired structural transformation. The national budget provides a roadmap for achieving sustained economic growth and improving the livelihoods of Zimbabwean citizens and this can be done by outlining clear priorities and strategies.

The Impact of the National Budget on the Informal Economy

The National Budget can be criticized in that it does not specifically or directly discuss the initiatives to improve the informal sector. This leaves one to assess how the strategies drafted will impact the informal sector, and such assessment is limited and inaccessible to those in the informal sector. 

The currency and introduction of the Zimbabwe Gold Currency (ZiG) in 2024 are assessed in the Budget to ensure that there is more stability in the country’s economy. This is not as favorable for the informal economy as it is mainly cash-based and has relied heavily on the use of the US dollar. The foreign currency black market has now been heavily criminalized even though many Zimbabweans have been surviving through this. There needs to be a move from declaring illegality without measures put in place to ensure stability in the informal economy. The removal of VAT exemptions on basic commodities affects the prices and results in a lack of profit for those in the informal economy.

The creation of formal employment opportunities will assist the youth in the informal sector to shift into the formal sector. This may have a negative impact on those without an education or who have not been employable for a lengthy amount of time. The formalization of the informal economy has its disadvantages. Formalization means that there is a strategy for taxing the informal economy. The National Budget states that the government is making efforts to collect all debts and that will be done by designing tax policies that target the informal sector. The Budget recognizes the growth of the informal economy and suggests formalization of the economy.

The Budget seeks to do so, ‘by addressing the various constraints they face which include complex registration requirements, information asymmetry, access to credit, as well as strengthening linkages with formal businesses, among other issues.’ There is a need for more clarity on how the Budget intends to do that and in terms of the Informal Cross Border Traders, which frameworks will the Budget be working with such as the AFCTA. The hike in passport fees affects those in ICBT and does not support the free movement of people.

Formalization of the informal economy does not act as a panacea to all the issues affecting the Zimbabwean economy and does not foster inclusivity. There are costs the people will need to incur when shifting to formal economy, this includes licensing and registration fees of business which may be out of reach of a significant portion of those operating in the informal sector. It is also essential that the formalization project is embarked on with a holistic view of issues that will impede its success and access thereof such as corruption. 

The Africa Report, reports that ‘In the 2024 budget, wholesalers are allowed to trade directly with informal traders on condition that they pay a 5% withholding tax. However, increasing the tax base will harm a wider sector of society which will have to account for higher expenses as the tax net widens.’ Taxing the informal economy increases marginalise especially without support mechanisms in place.

Conclusion and Recommendations

“Nyika inovakwa, igotongwa, igonamatigwa nevene vayo/ Ilizwe lakhiwa, libuswe, likhulekelwe ngabanikazi balo”,

This is the statement that has been inserted into the National Budget. This statement means that Zimbabwe is built and developed by its people and those who live in it. The informal economy makes up 90% of the people of Zimbabwe, if the country is to be developed by those who live in it and its people, the informal sector is a significant component of these people. The Budget does not prioritize the Informal Economy and gives clear measures on how it will finance the sector. Each constraint should be allocated with a strategy and resources. The vagueness does not allow accountability, and this will only lead to further marginalization of the informal economy. The Budget needs to be communicated effectively to those who do not have access to it. The release of a budget does not mean those in rural areas and not as educated will understand it and this means they stand a high chance of being seen as on the negative side of the law because they had no knowledge or understanding of it and the accompanying implications on them.

There needs to be allocation of resources to initiatives that assist the informal economy. The informal economy needs initiatives in place so that they may feel supported and not further marginalized. The ICBT sector is a large part of the informal economy in Zimbabwe and needs to be acknowledged and understood first, and a critical recommendation will therefore be to collect data and conduct deeper analysis for informing policymaking. Cross-border trading creates employment and so there needs to be support for the employment-creating role of the CBT.

Informal cross-border traders affect Africa in how the governments lose revenue through the evasion of taxes and duties and public safety but females in informal cross-border trading enhance greater food security and are a source of employment thus reducing poverty and they are improving their livelihoods. In the Gender Budgeting of women, there needs to be an allocation of resources to women in the informal economy that assist and protect them from constraints and challenges they face in the informal economy such as sexual harassment, domestic violence, cross-border obstacles, and access to credit.

There needs to be implementation of gender-sensitive policies for them to fully access opportunities. These actions can include gender-sensitive education, women-training programs, financial support for women, and implementation of tax reductions for them to be formalized in the later years. If there is a clearer legal framework, women will be protected and participate formally. The budget needs to directly put measures that are going to improve the informal economy’s access to credit and financial services. There needs to be sufficient resources provided for infrastructure, business training, market access, and other support services to informal businesses. It is time for the National Budget to not make formalization a panacea and instead prioritize measures to support the informal economy.