The presence of the informal, let alone its rising trend is a critical sign of a deteriorating economy- says a UNDP official who was making his presentation at the Macro-economic Framework Seminar held at the HICC in Harare this afternoon.
Udo Etukudo says the informal sector is never known to be a meaningful and key contributor to a country’s Gross Domestic Product (GDP). “The presence of the informal sector anywhere in the world is a clear sign of economic failure,” he said.
He said on that note, it is therefore critical for Zimbabwe to invest in the education of the youths so that they are equipped with skills needed in this new sector. Etukudo adds that 80 percent of SMEs (a graduation from informal) in developing that are almost at the stage of Zimbabwe have been dying within 3 years from establishment because of lack of skills needed in this new sector.
He warns that even the ZimAsset blue print that was promulgated by the ZANU PF government as a way to promote economic growth need a holistic scrutinisation if its targets are to be met owing to the current fiscal space prevailing in the country. This will face a challenge of funding as there are limited revenue inflows into the country’s coffers. “How can you tax a shrinking economy, the revenue base is shrinking. So this needs to be taken into account for the success of the policy,” he adds.
Meanwhile, Vendors Initiative for Social and Economic Transformation (VISET), the informal sector contributes 40 per cent to the nation’s (GDP), but it is lacking government support. It says against the backdrop of the anachronistic unemployment levels and a myriad of economic challenges, vending has become a natural alternative for the majority of Zimbabweans.
“It is therefore vital for government to ensure that there is enough budgetary support for the sector, with particular attention on access to finance/ capital, and provision of infrastructure that supports vending,” says VISET.
The Engineering, Iron and Steel Association of Zimbabwe (EISAZ) sectorial strategy 2015-2020, also confirms that the informal sector is now a critical sector and the country needs to mainstream it with the formal economy to revitalise the competitiveness of the value chains.
The International Labour Organisation (ILO) and UNDP, 2000, views the informal economy as being broadly classified as one which consists of mainly unregistered and unregulated small units engaged in production and distribution of commodities, with the primary aim of generating income for the participants.
It was also noted that the sector is generally viewed as low productivity, low profit, lacking safety nets, and poverty trap, but, with potential to break through under systematic support initiatives.
Countries with largest informal sectors are those with lowest GDP per head, and an increase in informal sector affects economic growth negatively, just as Etukudo has pointed out.
In 2003, 62% of household income came from primary income that is wages and salaries, a decrease in this, indicated economic decline (rising unemployment), this gave rise to household business in this case (informal sector).
A recent survey by Zimbabwe’s National Statistical Office (Zimstat) shows a workforce (aged 15 years and above) of 7.8m people, out of a total population of 13.4m. Of this potential workforce, some 750,000 people—most of them students—are defined as economically inactive, while 800,000 are officially defined as unemployed.
Zimstat reports that 94.5% of the 6.3m people defined as employed are working in the informal economy. The largest number (4.16m) is made up of smallholder farmers in communal agriculture, followed by 615,000 in trade and commerce. Some 210,000 are said to have informal jobs in manufacturing, 70,000 in mining, 118,000 in education and 92,000 in transport.
Taken at face value, these figures put formal-sector paid employment at only 350,000 people—which are about half the figure published quarterly by the same statistical service.
Critics say that the definition of informality is too broad because it includes paid employees who do not have a formal contract with their employer and who are not entitled to pensions, annual holidays or sick leave.
Workers in this category are referred to in the report as those in “precarious” employment. Using a stricter definition of informality increases the total number of people in permanent employment to 970,000, and lowers the informal percentage from 94.5% to 86%. Whichever estimate is used, however, the size of the informal sector is much greater than the widely used by the World Bank.
It is not just the size of the informal sector that is concerning but the extent and speed of its growth. Comparable data for 2011, also published by Zimstat, show that in the three years to 2014 informal-sector employment grew by a staggering 29%, from 4.6m to 5.9m. The reports show that 248,000 people were formally retrenched in the seven years to 2011 (equivalent to 35,400 a year), with the pace escalating to 227,000 retrenchments over the 2011-14 period—equivalent to 75,600 a year.