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Formal sector business on the decline

THE formal sector in Zimbabwe is shrinking rapidly compared to the informal sector due to high taxation laden with rules, regulations and red-tape, industry officials have said.


CZI president Busisa Moyo
CZI president Busisa Moyo

Registered businesses in Zimbabwe are currently suffering from heavy taxation, red-tape, rules and regulations among other issues that threaten their survival.

This, according to industry officials, has led to closure of many strategic businesses while some have downsized or relocated to other countries like Botswana, Zambia and South Africa where there is less red-tape.

Industry officials who spoke to Standardbusiness last week said the informal sector was now flourishing in Zimbabwe because they faced fewer regulations or taxes as compared to the formal sector.

“In the informal and black market there are fewer regulations or taxes, so costs are low. The formal sector is overtaxed and laden with rules, regulations and red-tape, that’s why it is shrinking while the informal sector is flourishing,” Confederation of Zimbabwe Industries president Busisa Moyo said.

“Clever entrepreneurs move from environments with many rules and costs to environments of less rules and lower costs, both within economies and across economies,” he said.

Moyo said industry was currently constrained by low consumer spending, cash shortages and foreign liquidity. He, however, said the liquidity situation may improve in the second-quarter owing to tobacco inflows, the falling away of huge maize imports and stringent import management by the banks.

Surveys conducted by Standardbusiness in Bulawayo early this year showed that the black market or informal sector was gaining traction in Zimbabwe each day. It also showed that products such as shoe polish, washing powder, bathing and washing soap were being sold by vendors outside main supermarkets at lower prices than what was being charged inside formal shops. The situation is the same in Harare.

For example, 50ml shoe polish costs $1,20 in supermarkets but $1 on the black market.

Confederation of Zimbabwe Retailers president, Denford Mutashu, said retailers were grappling with challenges posed by vendors, requesting local authorities to ensure vendors operated in designated places rather than in front of formally registered businesses, thereby posing unfair competition.

“Night time vending has also become rampant in other cities. Harare has literally legalised vending carts and these, in addition to illegal street vending, have given the retail business nightmares,” Mutashu said.

Vendors are now displaying on the streets large quantities of phone accessories, cigarette, watches, belts, sweets, matches and snacks, said the Bulawayo City Council (BCC) in its latest minutes.

BCC mayor Martin Moyo said the council was doing its best to contain the issue but was losing the battle. He said the only remedy to the challenge was industrial revival.

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