Zimbabwe’s economy is now dominated by informal activity. The latest national economic census shows that over 75% of businesses operate outside the formal system. That means no tax registration, no social protections, and no regulatory oversight. For many Zimbabweans, informality is not a choice but a necessity—formal jobs are limited, and starting a registered business is expensive and bureaucratic.
This trend has major implications. It helps people survive in a broken system, but it also limits tax revenue, weakens institutions, and makes long-term planning nearly impossible. It’s a structural issue, rooted in years of economic decline, unstable policy, and an environment where informality is often the only viable path.
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Understanding the Scale and Composition of Zimbabwe’s Informal Sector
1. The Magnitude of Informality
The recent economic census, which surveyed over 204,000 businesses, reveals that the informal sector in Zimbabwe is the backbone of the economy. Notably, 73% of informal economic activity is concentrated in wholesale and retail trade, followed by manufacturing at 8%. The informal sector’s extensive reach underscores its role as a primary source of livelihoods, especially in a context where formal employment opportunities are scarce.
2. Geographic Distribution
The province of Bulawayo exhibits the highest concentration of formal enterprises, accounting for approximately 40% of formal economic activity, significantly higher than other regions where formal enterprise presence is below 30%. This regional disparity highlights the uneven distribution of formal economic activity and underscores the importance of localised policy interventions.
Challenges Posed by the Informal Economy
1. Revenue Generation and Fiscal Implications
Despite its vital role in providing livelihoods, the informal sector contributes minimally to government revenue due to widespread non-compliance with tax regulations. The Zimbabwe National Statistics Agency emphasises that the informal economy’s growth has not translated into proportional tax revenues, constraining government capacity to fund infrastructure, healthcare, education, and public services.
2. Business Environment and Regulatory Framework
The Confederation of Zimbabwe Industries (CZI) describes the current environment as “critical,” citing the squeeze on formal businesses. Many formal enterprises struggle with excessive regulation, high compliance costs, and low profit margins, discouraging formalisation. This environment incentivises businesses to remain informal to avoid taxes and regulatory burdens.
3. Economic Stability and Growth
The informal economy’s expansion is largely a reaction to macroeconomic instability—decades of economic mismanagement, hyperinflation, currency crises, and limited job prospects have driven entrepreneurs and workers to operate informally. While this offers immediate survival mechanisms, it undermines long-term economic stability, formal sector growth, and investor confidence.
Comparative African Context
Zimbabwe’s experience is mirrored across several African countries:
• Kenya: The informal sector employs over 83.6% of the workforce, with 90% of new employment outside agriculture created informally. Despite the high level of informality, Kenya has made strides in taxing informal enterprises, with 89% reporting some form of tax payment, indicating potential pathways for formalisation.
• Nigeria: Nearly 89.4% of MSMEs operate informally, yet a significant portion pay taxes, suggesting that formalisation is feasible and can be incentivised through targeted policies.
These examples illustrate that while high informality is a regional trend driven by macroeconomic and regulatory challenges, there are viable pathways toward integrating informal businesses into the formal economy.
Strategic Recommendations for Zimbabwe
1. Simplify and Incentivise Formalisation
• Encourage the transition from informal to formal economic activity in Zimbabwe, the government should simplify and incentivise the formalisation process. This includes streamlining business registration through user-friendly digital platforms, reducing or waiving registration fees for small enterprises, and offering tax incentives such as tiered rates or temporary tax holidays. These measures can lower entry barriers and make formalisation more attractive and accessible for informal businesses.
2. Strengthen Tax Administration and Compliance
• Strengthen tax administration and compliance in Zimbabwe’s informal economy, the government should leverage technology by utilising mobile money and digital platforms for efficient tax collection and reporting. Enhancing the capacity of tax officials is also crucial—through targeted training to help them identify and support small enterprises in their journey toward formalisation. Additionally, public awareness campaigns are essential to educate informal entrepreneurs on the tangible benefits of formalisation, such as improved access to credit, markets, and government assistance.
3. Foster an Enabling Business Environment
• Foster an enabling business environment, Zimbabwe should focus on reducing regulatory burdens by streamlining licensing procedures and cutting compliance costs. Additionally, improving infrastructure—such as market spaces, transportation networks, and utilities—will ease operational challenges for businesses. Enhancing access to finance through tailored financial products for small enterprises can also encourage greater participation in the formal banking system, supporting sustainable business growth.
4. Promote Financial Inclusion and Digital Innovation
• Expand access to mobile banking and digital payment systems to facilitate formal transactions.
• Encourage fintech solutions that cater to informal entrepreneurs, making compliance easier and more affordable.
5. Strengthen Policy and Institutional Frameworks
• Develop comprehensive policies that recognise the informal sector’s role and provide pathways for transition.
• Establish dedicated agencies or units focused on small business development and formalisation.
Long-term Outlook and Conclusion
Zimbabwe’s informal economy is both a symptom of economic distress and a potential engine for growth if strategically harnessed. The key lies in balancing regulation with support, ensuring that informal enterprises can transition smoothly into the formal sector without losing their livelihood base.
By adopting targeted, inclusive policies that simplify formalisation, incentivise compliance, and improve the overall business climate, Zimbabwe can unlock the economic potential of its informal sector. This will not only boost government revenue but also foster sustainable economic growth, job creation, and social stability.
In summary, Zimbabwe stands at a crossroads where proactive, evidence-based policies can transform its informal sector from a survival mechanism into a driver of economic resilience and prosperity. The journey requires coordinated efforts across government, the private sector, and civil society to realise this vision of an inclusive, formalised, and vibrant economy.
