
The latest economic measures announced by Finance minister Mthuli Ncube, following a high-level meeting chaired by President Emmerson Mnangagwa, represent a concerning shift towards heavy-handed market intervention that could exacerbate rather than solve Zimbabwe's deep-rooted economic challenges.
While government celebrates an average 5,5% growth since 2021, the reality on the ground tells a different story, one of increasing informalisation, currency instability and eroding consumer purchasing power.
The direct supply of goods by manufacturers to informal traders, which the government now seeks to curtail, emerged as a natural market response to inefficiencies in the formal distribution chain.
When Ncube argues that this practice "compromises the operations of formal wholesalers and retailers," he overlooks the fundamental economic principle that efficient markets naturally find the most cost-effective distribution channels.
The proposed intervention to force goods through formal wholesale and retail channels risks introducing artificial bottlenecks that could drive up consumer prices and fuel black market activities.
The government's fixation on tax compliance through measures like the 5% withholding tax on unregistered micro and small enterprises (MSMEs) and mandatory point-of-sale systems reveals a disconnect from operational realities. In an economy where power outages are routine and internet connectivity is unreliable, mandating electronic payment systems seems impractical at best and destructive at worst. The formal retail sector's struggles, exemplified by OK Zimbabwe and TM Pick n Pay's declining market share, stem not from informal competition alone but from broader structural challenges including foreign currency shortages, high operational costs and diminished consumer spending power.
The phenomenon of "product bunching" in formal retail chains, where essential goods are bundled with less desirable products, illustrates the desperate attempts by formal businesses to maintain profitability under current conditions. This practice, while temporarily boosting revenue, ultimately drives consumers towards informal markets where goods are available individually and often at lower prices. The government's new measures do nothing to address these underlying market distortions.
More concerning is the establishment of a "Domestic Interagency Enforcement Team" to enforce compliance in the informal sector. Historical evidence from similar initiatives in Zimbabwe shows that such enforcement mechanisms often become vectors for corruption and harassment, driving informal traders further underground rather than encouraging formalisation. The reduction of the VAT registration threshold from US$40 000 to US$25 000 similarly appears designed to capture more businesses in the tax net without addressing the fundamental reasons why businesses prefer to operate informally.
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The currency crisis lies at the heart of Zimbabwe's economic challenges. Despite government efforts to promote the Zimbabwean dollar, the dominance of the US dollar in informal markets reflects a rational response to monetary instability. When Ncube announces that "the Reserve Bank of Zimbabwe will announce additional measures through the Monetary Policy Statement to enhance the formalisation of the market," he appears to be approaching the problem backward. Currency stability should precede, not follow, market formalisation efforts.
The government's approach also fails to recognise the critical role of diaspora remittances in sustaining the economy. These inflows, estimated to exceed US$1,5 billion annually, largely bypass formal banking channels due to lack of trust in financial institutions and unfavourable exchange rates. Any meaningful economic formalisation strategy must address this trust deficit and create compelling incentives for remittances to flow through official channels.
The measures targeting "deemed smuggled products" including alcoholic beverages, dairy products and detergents, while well-intentioned, ignore the pricing dynamics that make smuggling profitable. As long as significant price differentials exist between Zimbabwe and neighbouring countries, and border controls remain porous, such regulations will merely increase the premium on smuggled goods rather than curtail their flow.
Looking at successful formalisation efforts in countries like Rwanda and Kenya, the key ingredients have been gradual, incentive-based approaches combined with significant improvements in the business environment. Instead of forcing formalisation through punitive measures, these countries focused on making formal operation advantageous through simplified registration processes, access to finance, business development support and stable macroeconomic policies.
Zimbabwe's informal sector, accounting for over 70% of economic activity, is not merely a tax evasion problem, it is a symptom of deeper economic malaise. The sector has become the primary employer and source of livelihoods for millions. Any attempt to formalise the economy must balance the need for regulatory compliance with the imperative to preserve these essential economic activities. Until the government addresses fundamental issues of currency stability, power supply, regulatory efficiency and governance, attempts to force formalisation through administrative measures will likely prove counterproductive, potentially pushing the economy further into informality while increasing hardships for ordinary Zimbabweans.
- Lawrence Makamanzi is a researcher who writes here in his personal capacity. He is reachable at his email address [email protected] or 0784318605.