Outlook for Zimbabwe’s Shadow Economy

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According to the Labour Force and Child Labour Survey report (Zimstats, 2019), at least 2,9 million of the 3,4 million economically active age group are employed under the new internationally conceded definition of employment.

The employed are defined as all those of working age from 15 years and above who produce goods and services for a profit. At least 84 percent of Zimbabwe’s economically active population is employed or self-employed within the formal and informal sectors, giving an official unemployment rate of 16 percent. The informal sector dominates, employing 2,2 million (76 percent) of the total employed population.

The IMF defines the informal economy as “the shadow economy that includes all economic activities which are hidden from official authorities for monetary, regulatory and institutional reasons”. In a working paper titled, “Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?” (IMF, 2018) which analysed 158 economies from 1991 – 2015, Zimbabwe was ranked third largest informal economy as a percentage of official GDP at 60.6 percent.

Years of economic challenges have seen Zimbabwe’s formal economy significantly dwindling.

Faced with a lack of employment opportunities in the formal sector, Zimbabweans have displayed great ingenuity to create jobs for themselves in the informal sector. However, they find themselves on the fringes of the law as they often lack the required operating licenses; or violate zoning by-laws that ban commercial activity from residential areas; lack basic social protection and; exposed to hazardous working conditions.

As the COVID-19 pandemic unfolds, the informal sector is disproportionately affected, threatening livelihoods and sources of income for many. Measures adopted by Government to curb the spread of the virus, have led to the shut-down of most informal markets and workspaces. With no timeframe set on the opening of the informal markets and workspaces, the Government indefinitely extended the national lockdown, and as such the majority of families have been left with no source of income and livelihood, exacerbating their vulnerability and poverty.

The relaxation of lockdown conditions as announced in Statutory Instrument (SI) 110 of 2020 largely excluded the informal sector.

Chances of a quick recovery for the informal sector are gloom as the Central and Local Government conducted an operation to demolish informal workspaces. Under the enforcement of SI 77 of 2020, which permitted local authorities to demolish any premises whose occupation or use is considered likely to favour the spread or render more difficult the eradication of COVID-19, Councils unduly targeted informal workspaces only. Vending stalls, tuck-shops, factory stalls, stock, equipment and other property used in the informal economy were demolished.

In addition, measures contained in SI 83 of 2020 that led to the closure of the country’s borders, disrupted supply chains for raw materials and finished goods. This effectively crippled the informal sector that heavily depends on imports.

On a positive side, Government has promised to deliver 8,500 workspaces to replace the ones it demolished. However, according to the Learning on the Streets study, it is difficult to eliminate the influence of space barons in the allocation of workspaces, hence we recommend this process be led by the private sector or a Private Public Partnership arrangement with a delivery date timeframe.

In response to the economic challenges caused by the COVID-19 pandemic, the Government announced an $18 billion Economic Recovery and Stimulus Package (US$720 million at the official exchange rate of $25:US$1 and US$257 million at the parallel market exchange rate of $70:US$1 on 07 June 2020). This economic recovery and stimulus package is designed to support the recovery and growth of key sectors of the economy and provide social assistance to households affected by the coronavirus-driven economic slump.

At least $500 million of the package is earmarked to support SMEs and the informal sector. Despite the announcement of this package, the post COVID-19 economic sentiment has remained pessimistic. Government has a history of policy inconsistency and not living up to its promises. For example, during the early stages of the lockdown the Government announced a $600 million social assistance package in the form of cash transfers initially intended to benefit 1 million individuals. The beneficiaries were later reduced to 500 000 and up to now the money is yet to be disbursed. In addition, the registration process for beneficiaries was tainted by accusations of being based on political affiliation.

Furthermore, the disbursement mechanism and timelines of the economic recovery and stimulus package are not clear. As the inflation rate continues to rise, having reached 765.57 percent by April 2020, the $18 billion continues to lose value daily and this will likely result in the desired impact of reviving the economy and cushioning the vulnerable not being met.

Evidence, has indicated that informal sector players are likely to be excluded from accessing the financial packages because of their underlying deficiencies such as lack of collateral, traceable financial history and formal registration documents.

Lack of broad consultations by Government on key policy decisions is undermining their well-intended efforts.

The decision to centralize the public transport system under the Zimbabwe United Passenger Company (ZUPCO) parastatal through SI 99 of 2020, although intended to curtail rising transport costs, is discouraging private enterprise and entrepreneurship. This has resulted in a critical shortage of transport for commuters.

This has resulted in thousands of jobs for informal Commuter Omnibus drivers, conductors and rank marshals coming under threat. This policy decision is likely to increase the burden on the fiscus as the Government continues to subsidise ZUPCO in order to maintain control over transport costs. It remains to be seen whether ZUPCO will be able to manage the public transport system, having already collapsed previously and subsequently resuscitated at least twice by the state.

As economic performance continued to decline, the Total Consumption Poverty Line for an average of five persons per household had risen to ZWL$6,421.00 by April 2020, an amount which is way above average earnings and likely to see millions of families facing poverty. The World Food Programme estimates that at least 7 million people face severe food insecurity, with millions of people already requiring humanitarian assistance due to prolonged drought, climate-related shocks and economic deterioration with the situation set to worsen as the COVID-19 pandemic unfolds. The Global Food Crisis Report Forecast estimates that extreme poverty has risen from 29% in 2018 to 34% in 2019, which equates to 5.7 million people.

At present, without workspaces and capital to restart operations, the informal sector has a bleak outlook. The situation is anticipated to worsen as a digital economy is expected to emerge post the COVID-19 concern period.

This might mean additional costs to acquire, install and run appropriate ICT infrastructure and equipment and reskilling. In addition, the Government has placed the burden on companies both in the formal and informal sectors to test their employees for COVID-19 as a precondition to restart operations. Zimbabwe is now at a precipice and requires the collective will and efforts of all citizens to avoid a possible impeding collapse.

SIDEWAOS is an independent research consultancy firm send feedback to sidewaos@outlook.com