Retailers under threat . . . informalisation gets out of hand

Street retailer, Grant Nyeke, sells basic commodities on the streets of Harare, Zimbabwe. Nyeke sells items smuggled into Zimbabwe from neighboring countries. (Linda Mujuru, GPJ Zimbabwe)
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CALLS for formalisation of businesses continue to grow louder as the formal sector feels the pinch from the emergent informal economy in the country.

Major retail players from diverse sections of the economy like food, clothing, textile, and footwear, have fallen victim to the sprawling informal sector and have since exhorted the Government to bring the situation under control before it buries the once vibrant formal sector.

This is apparently bleeding the fiscus and the situation is fast deteriorating, with Minister of Finance and Investment Promotion, Professor Mthuli Ncube alluding that the Government was losing circa 25 percent of the revenue collections.

Retailers Association of Zimbabwe (RAZ), a body that represents major retailers such as OK Zimbabwe and Pick n Pay, said it used to contribute more than 20 percent to Government revenue through Value Added Tax (VAT) and other forms of remittances, which has since plummeted as the informal sector has mushroomed to dominate the local economic space.

Effects of an informalising economy are widespread and this has seen shrinking volumes uptake in formal retail stores.

Consequently, popular retail shops like Metro Peech have folded operations, while entities like Choppies are apparently struggling as witnessed by the recent closure of the Harare Street branch in the capital, coupled with endless rental woes.

Just on Wednesday, OK Zimbabwe Limited, one of the country’s largest retail stores, announced a 7,7 percent decline in sales volumes for the year to March 2023 stemming from low consumer demand as consumers increasingly juggle their shopping between informal traders and established retailers.

OK Zimbabwe Limited’s volumes for the first quarter to June 2023 fell by 22 percent when compared to prior year comparative and 16 percent when compared to the previous quarter, according to chief executive officer Max Karombo while presenting at an analysts’ briefing on Wednesday.

Karombo said sales volumes were affected by rapid currency depreciation and high incidents of stockouts.

This is at a time when suppliers are now offering short trading terms as they favour the informal sector which pays cash while at the same time running away from currency depreciation.

The informalisation scourge is cross-cutting even hardware shops are battling it out with enterprises that are rampantly importing non-duty-paying stock from beyond the country’s borders.

Even textile shops have not been spared from this growing cancer. Earlier this year Truworths underscored that the informalisation threat was hampering the performance of formal players in the textile sector saying its business was struggling to compete with cheap and fake imports now selling at below local manufacturing costs.

Analysts are also of the view that the growing informalisation is rebuffing the Government’s drive to promote use of local currency as envisioned by the Government given that almost 100 percent of informal players were trading in USDs.

Of late retailers have been complaining that suppliers now prefer selling to hawkers and runners who settle their obligations in USD compared to formal retailers who normally pay in RTGS and over say three months.

Karombo said the company, which is only receiving 20 percent of its sales in US dollars, had seen a 24 percent drop in US dollar sales during the period under review compared to the same period last year.

OK Zim’s US dollar sales were down 7 percent quarter-on-quarter.

Some of the locally manufactured grocery items are being found plentifully on vendors’ stalls and downtown shops, as these selling points are magnets to the abundantly circulating US dollars.

Analysts are of the view that the Government has occasionally been fomenting the existence of the non-tax paying informal sector as it sometimes institutes Statutory Instruments that allow individuals and corporates to import merchandise duty-free, making the country a dumping ground, a position that is detrimental to the growth of the local sector.

This has seen insurgence of mobile markets fuelling competition with the formal sector.

RAZ representative, Themba Ndebele, bemoaned the highly informalising economy saying it was bleeding the country, in terms of lost revenue from duty.

According to Ndebele, Zimbabwe has the largest informal retail and distribution sector in Africa and is fifth in the world behind countries like Bolivia and Chile, a position he said was not sustainable, adding that the Government should timeously address this issue if it was serious about creating a stable local economy.

“People are simplifying things when talking about informalisation, we simplify it and talk about selling vegetables and bananas, that is not the issue and one day it is going to consume all of us, because the country is now having a lot of imported manufactured products coming without duty payable which is a loss of government revenue.

“The informalisation that the country is going through at the moment is unprecedented, and it has serious implications on the fiscus.

“Minister of Finance has alluded that 25 percent of the revenue is actually not going through the government coffers and once you have that sort of leakage in government revenue system your service delivery fails, including servicing debt.

“Formal retailers are required to use official exchange rates and are required to display prices and the informal retailers are allowed to do what they want without regulation all this is putting formal retailers at a disadvantage,” said Ndebele.

He went on to mention how the uncontrolled informal sector was fuelling dollarisation at a time when the Government was pushing for local currency use.

“The informal sector is deepening dollarisation, because everything in the informal sector is dollarised, so the impact of having those dollars circulating outside the banking system is actually disintermediation of the banking system in a country where the savings are already low. With low savings and low deposits, how can the banking sector be expected to drive the economic growth.”

Confederation of Zimbabwe Retailers (CZR) president, Denford Mutashu, said the government should move to come up with a formalisation strategy, as it was losing a lot of revenue because of many businesses that are currently operating but are not registering or remitting to the fiscus.

“Shadow economy is one of the threats to national development, it has been growing at an alarming rate, these enterprises should be approached with an accommodative hand rather than coming in with a heavy hand, which might promote more informalisation,” said Mutashu.

However, the Government has said it will move to address distortions happening within the supply chain whereby manufacturers are directly delivering goods into the informal sector, threatening the viability of wholesalers.

Industry and Commerce Minister, Dr Sithembiso Nyoni, during a tour of National Foods Holdings on Wednesday, said if the Government does not address this trend, it would foment chaos within the commerce segment.

“We are putting order in the commerce sector by ensuring that manufacturers deliver to wholesalers and these are accessed by retail rather than what is happening now, whereby companies are delivering to the informal sector.

“That is distorting that value chain. If we do not address that, we are killing the wholesalers and bringing chaos to the market,” she said.

Nyoni said the value chain creates jobs and order, and that is the policy of the Government.

“National Foods understands this, and together we will correct this and ensure we address the distortions that are happening right now,” she said.

She noted that the manufacturing sector has been one of the fastest-growing sectors in the country, riding on the back of a stable economy.

“Therefore, we will support the industry in any way. If they produce quality, we will ensure there are no imports, and if our industries give our consumers good quality, we will ensure to protect them,” said Nyoni. – Business Weekly