BY TATIRA ZWINOIRA
A WORLD Bank (WB) economist has warned that Zimbabwe’s recovery efforts will be held back by a “Long Shadow of Informality” that will affect revenue flows into the fiscus and aggravate deepening poverty.
Speaking during a Confederation of Zimbabwe Industries (CZI) meeting to review first quarter economic trends on Friday, WB chief country economist Stella Ilieva said in some countries where the informal sector is dominant, State revenues have been reduced by between five and 12 percentage points.
“The risk that we see is the high informality that actually holds back the recovery,” Ilieva said.
“As we know, the informal sector is quite significant in Zimbabwe. Maybe you have seen a recent World Bank report called the Long Shadow of Informality and this long shadow really affects revenue. The report estimates that five to 12 percentage points lower revenues are not only always encompassed with a higher informal sector but also makes it more complicated to do monetary policy or to provide a strong financial system,” Ilieva noted.
She spoke as several reports have indicated that as much as 70% of Zimbabwe’s economy has drifted into the informal sector following prolonged de-industrialisation, which started during the Economic Structural Adjustment Programme era in the 1990s and escalated at the turn of the century.
Zimbabwe has been trying to rebuild the economy through home-grown SMEs, after bad governance pushed away investors.
Apart from dodging taxes, the informal sector has failed to lift millions out of grinding poverty as it lacks financial resources to tackle Zimbabwe’s high unemployment levels.
“Another risk is the high poverty rate,” Ilieva noted.
“This will also contain demand here. We estimated a poverty rate of 45%, extreme poverty in 2020 and probably this year it will be similar. A lot of people, about 7,9 million people, are living below the food poverty line. They have very low access to education services, to health services and this needs to be addressed, otherwise it will damage long-term growth prospects,” she added.
“We are a bit more cautious in our growth projections for Zimbabwe although I am very happy to hear that businesses are very positive about recent developments. We also hear of recovery in the region and globally. But we also see significant risk to this recovery especially in the region. These risks are also valid for Zimbabwe,” Ilieva said.
“The main trading partners of Zimbabwe in the region, South Africa, is expected to grow at a modest rate this year, maybe the recovery will then strengthen next year but this year the situation doesn’t look so promising.”
Labour and Economic and Development Research Institute of Zimbabwe executive director Godfrey Kanyenze said: “If there is a favourable weather condition, we get excited about it but this is also the moment for us to do the right things that ensure that we secure the gains and also sustain the trajectory as well as mitigating the risk.”
Zimbabwe Economic Policy Analysis and Research Unit executive director Gibson Chigumira said for recovery to be achieved, stability was important.
“We need to understand the composition of the exports. What will make us remain more competitive as we get into the continental free trade area is to broaden the scope of manufactured exports. That is what will further increase our competitiveness as a country,” he said
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