More than US$7 billion circulating within Zim’s informal economy

MORE than US$7 billion is circulating in Zim’s informal sector, the fact that the country’s budget was just a measly $4 billion, a local economist has revealed.

Addressing a formalisation strategy workshop in Harare Thursday, Gift Mugano, a senior advisor with a local research company, said Zimbabwe could not go forward as a country if people did not put their money into the formal banking system.

“There are figures I know people from the Reserve Bank who are here will always deny, but there is $7.5 billion dollars circulating in the informal sector. As a matter of fact the money is there. We can argue about the actual figure but the money is there,” he said.

Mugano said there was need for those in the informal sector to formalise their operations and put their money in the bank, saying it helped them access loans.

“So when you formalise, you need to put money in the bank, financial inclusion. So that is another area we need to support this process, how the money can get banked so that the bank knows you and they support you. You cannot be given money by the bank if they don’t know you,” Mugano said.

Mugano said there were 5,7 million micro- small to medium enterprises in the country, which employed about 84 percent of the total population who were employed.

He said suggestions that the unemployment rate in the country was 80 percent was not correct as these were actually employed in the informal sector.

“That is why the World Bank insists that there is 90 percent unemployment because they don’t understand the situation. How do you have a country with 90 percent unemployment and there is no civil unrest. It is not possible economically; you cannot have a situation where 10 percent of the people who are employed are looking after the 90 percent of people who are not employed,” he said.

He added: “What is missing there is that we have formal employment which is 10 percent and informal employment which is more than 80 percent.”

Mugano said informal players should also look at formalisation from the context of marketing linkages.

“You also have to look at formalisation in the context of marketing linkages. These are areas of focus, so if you are not registered, it is very difficult to supply to a company because you have no identity , you have no bank account and there is no way they can pay you.

“You don’t have an identity as to who is supplying so you need to register with the registrar so that you will then be able to be availed marketing,” Mugano said.

He said the world economy was driven by small businesses which accounted for 60 percent of the total economy.

“In Europe as a whole, 23 million of the businesses; which is 99 percent, are micro-small to medium enterprises but you don’t see it when you are far away. So there is a rationale for us to see how we can unleash our potential by formalising the informal sector,” he said.

Mugano said the biggest industries in the world were powered by small enterprises, especially those which were in the sub-contracting, supply companies that provided small parts, which propped up big corporations.

“There is no cost rationale focusing on the small sub companies because they run on a large scale. They delegate this work to small players who can do that cost effectively and that is very important but when we look at it, we don’t see who is behind it, so we have a big hill and the ants, they are the small players,” he said.

Mugano said there was need for legislation to be put in place to protect small to medium enterprises so that they got business.

“For example, supermarkets are buying vegetables and tomatoes from Polokwane, but with market linkages, we have a legislative arrangement where companies can buy locally from these sectors of the economy, if they don’t buy local, they pay high tax as punishment,” he said. –  ANA