Strategise for informal economy or die, Cross tells companies

Eddie Cross
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THERE is no company that can survive in Zimbabwe without a strategy for the informal economy, now constituting over 70% of the country’s gross domestic product (GDP), economist Eddie Cross has said.

Addressing Confederation of Zimbabwe Industries Matabeleland chamber annual congress last week, Cross said local companies should have a strategy on how they can tap into the informal sector for survival.

“Then there is the issue of the informal sector — now over 70% of our GDP. This is both a problem (how do we collect taxes) and an opportunity. It means that our real economy is three times the size of the formal sector. No company can survive in this country without a strategy for the informal economy,” Cross said.

“I was asked in 2019 by the Minister of Finance (Mthuli Ncube) to help a struggling manufacturer in Harare with understanding the economic and policy environment and showing them how to manage both. I met with the chairman, chief executive officer (CEO) and several other executives and explained the situation with regard to foreign exchange, pricing and managing opportunity,” he said.

Cross said the chairman turned to his CEO and said: “‘On Monday, we change our pricing. We form an export division and we start implementing an operation to get into the informal market with our products’.

“Last month, they reported record sales and strong regional demand. The chief finance officer said to me the other day, ‘the only thing we no longer do is budget, a budget is worthless’.”

On the local currency crash, Cross said there were many reasons, but most of them were self-inflicted.

“We have no confidence in ourselves or our institutions. There are good reasons for that, but surely we should be able to recognise the difference between 2008 and 2020. We all play the game of money-changing, it has become one of the main sources of employment for our people, but at its heart are persons who produce nothing, but simply play games with our currency,” he said.

“Every time it depreciates, they make millions. As a result, people scramble for the exit and the Old Mutual Implied Rate soars. People with surplus RTGS [Real Time Gross Settlement] rush to convert it into United States dollars to protect its value. This is completely rational until the ponzi game stops. When it does, many will lose, big time.”

Currently, he said the country has US$1 billion in nostro accounts and since “we allowed the use of ‘free funds’ for local transactions; the US$ and the rand have re-emerged as major currency forms.”

“In fact, in value terms, our banks are holding twice as much currency in US$ form than we hold in Zimbabwe dollars, even if the great majority of electronic transactions are in local currency,” he said.

Cross applauded government for liberalising the gold sector.

“With the changes now taking place in the gold industry, I think Bulawayo has a great opportunity to become a major supplier to the mining sector. Under the value chain approach, we need to foster this,” he said.

Cross said until the introduction of the weekly auction of hard currency, Zimbabwe was the only country in Africa without a formal market exchange rate.