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Zimbabwe’s Retail Sector Faces Uncertainty Amid Rising Informal Competition

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HARARE,- Zimbabwe’s formal retail and wholesale trade sector is grappling with an uncertain future as it faces mounting pressure from an influx of informal traders. This competitive strain is exacerbated by the high costs of doing business in Zimbabwe, including numerous taxes, levies, and utility expenses.

Formal retailers have voiced their concerns about several constraints impacting their viability, with the unfair competition from informal traders being a primary issue. These informal traders, often referred to as tuckshops, typically operate outside the regulatory framework, avoiding taxes and trading exclusively in US dollars.

The retail sector’s struggles come at a time when consumers’ spending power has been significantly diminished due to persistent high inflation and economic instability. The presence of informal traders, who do not adhere to statutory regulations and offer lower prices, has created a challenging environment for formal businesses, leading many to downsize or even close shop.

An executive from a leading wholesaler, with branches nationwide, painted a bleak picture of the future for Zimbabwe’s retail and wholesale sector. “The environment is difficult for formal operators. Informal traders can avoid certain costs and regulations, making it tough for formal businesses to compete. This puts the future of formal retailers and wholesalers in a precarious position,” he said.

Adding to the industry’s woes is the proliferation of fake products and tampering with measures and weights of goods sold in the market. The executive noted, “There is a reason why regulations exist – to create standardization, protect consumers, and ensure fair competition. If these are not adhered to, the sustainability of the market is questionable.”

The challenges have prompted some formal retailers to rethink their strategies. OK Zimbabwe, one of the largest retail chains in the country, has implemented a 10-year recovery plan to address these issues. Despite a 15% increase in volume in the first quarter of 2024, the retail group reported a 10% decrease in customer count, highlighting the uphill battle they face.

Equities research firms have also noted the difficulties, with one stating, “OK Zimbabwe faces significant challenges in returning to profitability and regaining market share.”

The impact of informal trading is not only felt by individual businesses but also by the government’s tax revenues. The Zimbabwe Revenue Authority (Zimra) reported a decline in corporate tax contributions, attributing it to the rise of the informal sector, which now controls more than 60% of economic activities in the country. Corporate tax contributions to total collections dropped from 19% in 2020 to 10% in 2023.

In response to these challenges, Finance Minister Mthuli Ncube introduced new taxes in the 2024 national budget to bolster revenues. Meanwhile, the Confederation of Zimbabwe Retailers (CZR) has initiated efforts to formalize the operations of informal traders. President Denford Mutashu of CZR acknowledged the significant impact of informal traders on formal businesses and stressed the need for a level playing field.

“We have engaged with various authorities, including the Treasury, Zimra, banks, and the Ministry of Industry and Commerce, to address the challenges and expectations of informal traders regarding formalization and the fiscalization drive,” Mutashu said. He emphasized the importance of creating a more suitable presumptive taxation model for these traders, who currently find the fiscalization process costly and cumbersome.

The growing competition from informal traders has led to significant changes in the retail landscape, with some large registered retailers downsizing or closing operations. Mutashu highlighted the urgent need for policy measures that reflect the current market dynamics and ensure fair competition for all players.

As Zimbabwe’s retail sector navigates these turbulent times, the push for formalization and regulatory adjustments will be crucial in determining its future viability and sustainability.

Source: Business Weekly