‘Informal sector curtailing productivity’

By Tafadzwa Kachiko | Oct. 25, 2022 | 2 Min read

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THE World Bank (WB) has urged Zimbabwe to formalise its economy saying high informalisation is suppressing productivity and long-term development.

In a report titled Zimbabwe Country Economic Memorandum on Boosting Productivity and Quality Jobs produced recently, WB said the country’s informal sector presented less opportunities for Zimbabwe’s economic turnaround to achieve its vision of becoming an upper-middle-income country (UMIC) by 2030.

“Over three-quarters of formal sector firms face competition from informal firms, which is significantly higher than in middle-income countries and peers in sub-Saharan Africa. Three-quarters of formal firms in Zimbabwe identified competition from informal firms as a major obstacle to their businesses,” the WB report read.

“Cross-country evidence suggests that competition from informal firms can lower formal firms’ productivity by 24% compared with firms that do not face such competition. Lack of sustained growth and a business environment with heavy regulatory burdens have contributed to the persistent and pervasive informality. Subsequent positive output growth between 2009 and 2018 did little to reverse this structural change.”

WB urged government to come up with policies that enhance productivity in the formal sector and encourage formalisation of informal firms.

“Tackling informality needs to be at the forefront of Zimbabwe’s development strategy to enhance productivity, achieve high and sustained growth, and attain UMIC status. There are two pathways to realise the productivity potential trapped in the informal sector and boost its overall productivity level.

“Policies to enhance the productivity of the informal sector and linkages with the formal sector such as ensuring better access to finance for formal firms and seed funds and training provided to informal firms. Policies to encourage formalisation will need to be implemented in the medium term, but their impact on the formal sector will take longer to materialise.”

WB said Zimbabwe’s economic policies should remove distortions and misallocation of resources.