HomeOpinion & AnalysisColumnistsAfter diamonds, is informal sector new El Dorado?

After diamonds, is informal sector new El Dorado?

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Chiadzwa’s alluvial diamonds, according to NewsDay (April 15 2014) sustained and funded parallel government operations at a critical time in the country’s history to Zanu-PF’s advantage, rather than to the nation’s good.

Painona with Tapiwa Nyandoro

The milking of the mines which advanced one half of the Government of National “Unity” funds; offset against future tax payments, denied the mining companies, and thus the nation funds for mining development and investment in capital expenditure. Now that the alluvial resource was largely expended in consumption and is running out, the appearance on the scene of a new El Dorado in the form of the Informal Sector is raising pulses again in a beleaguered government. Is it justified?

A World Bank-funded consultancy concluded that there could be as much as
$7,4 billion in informal sector that circulates below the Receiver of Revenue’s radar. Needless to say, the taxman is excited, as is his boss the Ministry of Finance. Further evidence of a thriving Informal Sector came from the analysis of hydrocarbon fuels.

“Fuel consumption more than doubles (within three years)” was a recent headline in a State-owned daily. A week earlier the paper lamented the fact that $3bn per annum is lost to the region due to Zimbabwe’s lax foreign currency controls.

During the same period the Ministry of Finance and Economic Development scuttled the IMF’s Staff Monitored Programme by refusing to embrace austerity. “We want to consult”, the responsible minister said. He hopes salvation will come from taxing the informal sector.

It is believed the informal sector is accounting for the greater chunk of fuel usage, and that several billion dollars are circulating in the informal economy outside the formal banking systems. Zimbabwe Electricity Regulatory Authority (Zera) CEO Engineer Magombo, whose organisation compiled the fuel consumption statistics, suggested “there is an economy somewhere”.

“$7,4 billion is the amount circulating in the informal sector”, opined Small to Medium Enterprises minister, the “patron” minister of the informal sector. A little arithmetic will show the figure is well on the over optimistic side. Where did it come from if exports have always been less than imports after dollarisation? Aid donations, according to Western figures did not go beyond $3billion during the life of the Government of National Unity.

Foreign Direct Investment, which could have trickled down to the informal sector, never exceeded a billion dollars in any given year. In
Dubai recently, President Robert Mugabe described the diamond industry as the selling of an illusion. The hope that the nation had placed on the diamond industry was also misplaced. And so it seems will be the case with the informal sector.

Recent trade updates and, or financial results from the main local brewer, Delta and main retailer OK, suggest a shrinking formal and informal sector.

Chillingly, one leading bread supplier’s loaves sold have also come down. It must be a hungry, thirsty and sober informal sector out there. In any case there would not be a liquidity crisis, if the informal sector, now reckoned to be larger than the formal sector, was that liquid.

The persistent deflationary environment, alongside falling consumer spending and imports, as reported for February 2014 by Treasury confirm the negative outlook. All taken together the rational conclusion is that the $7,4 billion is but a dream.

The Ministry of Small and Medium Enterprises on whose behalf the World Bank funded consultancy should ask for its money back from the Consultancy.

“For investors in Africa’s stock markets, (the acronym) BBC means banks, breweries and cement”, The Economist (January 25 2014) noted.

The biggest companies listed on African exchanges, according to the report, are typical BBC firms. The trading figures of these BBC firms are said to be good guidance of how much lending, spending and building is taking place in African economies. The figures are particularly useful in countries where official statistics are scare and, or unreliable.

SABMiller, Delta’s parent, has operations in 15 African countries. Africa is SAB’s fastest growing market. Its latest trading statement of January 21st 2014” proved an interesting and “useful barometer to the state of African economies” the British Weekly reported. Zimbabwe carried the wooden spoon with consumption of lager declining by 25% during the period.

The paper attributed Zimbabwe’s misery to a “slowdown in the flow of dollars into Zimbabwe last year”. South Sudan, where there is a civil war was close to Zimbabwe in quaffing the brew. By contrast sales revenues rose by 20% in Ghana and closer to that in Nigeria, both countries with large informal markets and a fast growing formal economy.

Cement production has also taken downturn in Zimbabwe, whiles Bank profits have headed south. There is less lending, spending and building.

There is no evidence there is a large thriving informal market. What of the fuel consumption then? Is it just further evidence of increased inputs and decreased outputs; evidence of increasing poor productivity? Or is there less smuggling of the commodity?

Whatever the case the Ministry of Finance should avoid being distracted by the mystical riches in the informal sector. It may just be another illusion.

Efforts to “formalise the informal sector by ensuring that they are registered so that apart from banking their funds, they also pay taxes, which would go to Treasury and benefit our economy”, as called for by a recent editorial in a local daily, could be a waste of time. The editorial conceded: “Government recognises the importance of the informal sector to Economic Growth . . . but does not have a definitive strategy of helping them grow into world class enterprises”.

nyandoro.osbert1@gmail.com or feedback@newsday.co.zw

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