Zimbabwe's informal economy has resulted in a staggering loss of at least US$1.15 billion in potential fiscal revenue from 2020 to 2023, as reported at the Zimbabwe Economic Development Conference (ZEDCON) held in Victoria Falls. This informal sector now employs the majority of Zimbabwe's workforce, highlighting its significant role in the country's economy despite its drawbacks. The report, presented by University of Zimbabwe researcher Curren Pindiriri and co-authored with experts from the World Bank and the Confederation of Zimbabwe Industries (CZI), underscores the pressing need for policy reforms to address the challenges posed by the informal economy. High inflation rates, which surpassed 700 percent year-on-year by the end of 2023, coupled with an official exchange rate that has depreciated by over 95 percent since December 2023, further complicate the economic landscape. The upcoming 2025 Economic Census, set to begin in April 2025, aims to provide a comprehensive assessment of the business landscape in Zimbabwe, potentially informing future fiscal policies and strategies to mitigate revenue losses linked to informal trading. [437284e4]
In light of these developments, strategic advisory firm Mark and Associates has recommended that Zimbabwe consider non-tax revenue generation initiatives to broaden inflows into the fiscus, especially given the potential negative impact of the El Nino weather phenomenon on the agriculture-dependent economy next year. The firm suggests focusing on operationalizing the Mutapa Investment Fund (MIF) to turn around state-owned enterprises and generate investment income for the National Treasury. The country continues to grapple with severe electricity load shedding, capital constraints, policy shifts, and high public debt levels, which are affecting economic growth and development. [816d9408]
The government of Zimbabwe has also implemented new trading guidelines aimed at formalizing the informal sector and increasing tax compliance. These guidelines mandate manufacturers to source from tax-compliant wholesalers and set purchase limits for non-VAT registered retailers and individuals. While local industries have responded positively, believing it will level the playing field and boost state revenues, concerns have been raised about potential impacts on competitiveness. The Confederation of Zimbabwe Industries (CZI) has called for a multi-stakeholder approach to the formalization of the informal retail sector, emphasizing the need for gradual development to avoid disrupting established trade routes. [f3fbe663]
Overall, the ongoing debate about the informal economy's impact on Zimbabwe's fiscal revenue highlights the urgent need for effective policy measures to harness the potential of this sector while addressing its challenges. The loss of US$1.15 billion in revenue is a stark reminder of the economic implications of an unregulated informal economy, necessitating a balanced approach that promotes formalization without stifling the livelihoods of those who depend on informal work.