Harare, Zimbabwe’s capital, is experiencing a rapid transformation with the widespread emergence of small, informal shops known locally as tuck shops.
While these businesses have provided much-needed employment for many citizens excluded from the formal labor market, they operate outside of the tax system, posing significant challenges for the government.
The rise of these informal shops has led to the decline of established retailers and wholesalers, complicating the government’s efforts to formalize the economy. Economist Farai Mutambanengwe warns that this trend is detrimental to the country’s economic health.
“A country typically wants its economy to consist mostly of large, formalized enterprises,” says Mutambanengwe. “When informal businesses begin to dominate, it not only degrades the quality of the Central Business District (CBD) and reduces property values but also leads to tax evasion, the use of informal business channels, and increased dollarization of the economy. All of these factors negatively impact the economy.”
A major concern is that many tuck shops sell illegally imported goods, further complicating the situation. The government is worried that this trade bypasses the tax system, depriving the state of vital revenue. The continued growth of these informal shops is creating a significant challenge for policymakers, as the evasion of taxes and regulations becomes increasingly widespread.
Minister of Publicity, Information, and Broadcasting Services, Dr. Jenfan Muswere, highlights the issue, stating, “There’s a proliferation of smuggled and counterfeit goods that are unfairly competing with local products, as these smuggled goods are not subject to taxation and import duties.”
As Zimbabwe grapples with an ongoing drought that has further strained its economy, the finance minister warned in July that the 2024 budget deficit is expected to reach 1.3% of gross domestic product.
Economic growth for 2024 is projected at 2%, down from the 3.5% forecast in November. The rise of informal tuck shops only adds to the government’s difficulties in stabilizing the economy and securing revenue through formal channels.