A recent report indicates that Zimbabwe’s economy is fueled by the informal sector, with more than three-quarters of all economic activity taking place outside of established legal frameworks.
- Zimbabwe’s economy predominantly operates within the informal sector, comprising over 75% of economic activity.
- This trend arises from decades of economic issues, such as job shortages, inflation, and currency instability.
- The informal sector provides livelihoods but contributes minimally to government revenue due to tax non-compliance.
This is according to the results of the country’s first economic census, which present a striking picture of how pervasive the informal economy has become.
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Informal businesses in the Southern African country have now “increasingly become a significant source of livelihoods, its contribution to government revenue remains minimal due to non-compliance with the formal tax system,” the Zimbabwe National Statistics Agency said in a report released on Wednesday.
According to the country’s most prevalent industry body, the Confederation of Zimbabwe Industries, the situation poses a “critical risk” to the country’s economy.
“Formal businesses are being squeezed,” MacDonald Mutengo, CZI’s lead research officer, said at the event.
“Companies are not making profits, they are highly regulated.”
The informal sector’s expansion is mostly a reaction to the loss of official job prospects brought on by decades of economic mismanagement, hyperinflation, and periodic currency depreciations, as seen on Bloomberg.
According to the economic census, which surveyed over 204,798 businesses, wholesale and retail trade accounts for 73% of the informal economy’s activity.
Manufacturing trailed behind at 8%.
Bulawayo has the largest concentration of formal enterprises among Zimbabwe’s provinces, at 40%, significantly outpacing other areas where the formal sector make up less than 30% of the local market.
The growth of the informal sector in other African markets
This trend is not exclusive to Zimbabwe, as Kenya faces a similar situation.
Based on a 2024 report by the Kenya National Bureau of Statistics (KNBS), the informal sector employs 83.6% of the workforce, or approximately 17.4 million people.
Notably, the informal sector created 703,700 new jobs, accounting for 90% of all new employment outside of small-scale agriculture.
In Nigeria, the informal sector is also dominant.
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According to Moniepoint’s Informal Economy report, 89.4% of Micro, Small, and Medium Enterprises (MSMEs) do business informally.
However, unlike with Zimbabwe, an impressive 89% of these informal enterprises allegedly pay some type of tax, suggesting that taxing of this section is possible if properly handled.
