Zimbabwe: Formal Economy, Informal Economy, Under Economy.

 

Introduction

 

Developments on the socio-political front in Zimbabwe in 2020 have been curious to say the least.

 

Firstly, in their published financial reports, I’ve noticed that companies have a reemerging theme in the chairman’s statements. This is that the operating environment as characterized by erratic energy supply (electricity and fuel) not only affects productivity but also fuels inflation.

 

Of course this is an undeniable fact.  You just have to walk into any of the leading supermarkets and you’ll see this for yourself.

 

To say the least, some of the prices in there are quite ridiculous.

 

For instance a kilogram of beef is going for ZW240 in leading supermarkets. However if you head to the local butchery, a kilo of beef is going for anything between ZW60 and ZW85.

 

So you don’t have to stick to muriwo and potatoes! Just go round the corner to the local butchery for a good deal!

 

Informal Economy Can Drive Growth

 

Essentially, you’ll find similar price disparities when you compare the prices of several other groceries.

 

The fact is that it’s much cheaper to buy things from the informal economy than the formal economy, and that’s why you find people selling all sorts of groceries from their cars right outside supermarkets at your local shopping center.

 

Because of this trend I’ve been taking 2020 economic projections with a pinch of salt.

 

While economic analysts are predicting that the Zimbabwean economy will shrink by anything between 10% and 20% in 2020, I want to emphasis here that while that prediction may be accurate on paper, it however applies to formal economy (i.e. Pick n Pay and the likes), but necessarily to the informal economy.

 

Indeed, formal business will undeniably be affected by fuel and power shortages.  Erratic energy supplies forces formal businesses to use generators 24/7 and inevitably this pushes the prices of their goods and services up and makes them less competitive in the process.

 

However, the same does not necessarily apply to the informal sector.

 

In fact the butchery round the corner and the dude selling clothes and soap out of the trunk of his car are arguably thriving at the expense of Pick and Pay and the likes, bringing me to the proposition that the Zimbabwean informal sector is swallowing the formal sector.

 

 

Some may raise eyebrows and perhaps say “how can we be a country characterized by ‘musika’ and selling out of cars?”

 

That’s a fair remark, but the reality is that Zimbabwe’s formal economy has become less and less competitive over the years, and now it’s clear from market trends that the informal sector is becoming a viable alternative for consumers.

 

For instance, since formal private schools are becoming outrageously expensive, more and more “colleges” are emerging in people’s houses.

 

It’s also clear home manufacturing industries are on the increase, and this is not necessarily a bad thing.

 

In fact, internationally, data clearly suggests that the informal economy can drive national GDP growth.

 

For instance in India, the informal sector (including agriculture) contributed over 50% of the total GDP in 2008.

 

Also in Ghana 80%-90% of the Ghanaian workforce is employed in the informal sector.

 

According to The Ghana Living Standards Survey (6) the Ghanaian informal sector is predominantly made up of small to medium-scale businesses, consisting of producers, wholesale and retail traders and service providers which comprise family workers, casual wage workers, home-based workers, and street vendors, among others.

 

In light of that fact, it’s my argument that the Zimbabwean informal economy is similar to the Ghanaian.

 

What we often report in Zimbabwe as 90 % unemployment is actually meant as 90% formal unemployment, because 80%-90% of the Zimbabwean workforce is employed in the informal economy, and it’s my observation that businesses in the informal economy are doing a lot better than those in the formal economy.

 

As a result, the formal economy is being swallowed up by the informal economy.

 

Just take a trip to Mbare musika one of these days. Business is booming out there!

 

The Under-Economy.

 

While there is a clear indication that the informal economy is swallowing up the formal economy, there is also a disturbing increase in under-economy activity.

 

The under-economy, (also known as underground economy) refers to economic transactions that are deemed illegal. The underground economy in the United States mainly comprises the sale of street drugs and illegal prostitution while other examples of underground economic activity include smuggling and human trafficking.

 

In Zimbabwean terms, the continued proliferation of narcotics and the consequent violent crime are issues that need urgent attention.

 

I’ve argued before and will state again here that this “Mashurugwi” phenomenon and all other forms of violent crime currently underway in the country are directly linked to substance abuse and the proliferation of synthetic narcotics on the Zimbabwean market. I’ve got the data, get in touch if you would like me to present it to you.

 

Conclusion.

 

While I think that it’s clear that the informal economy is swallowing the formal economy, government still has a lot of work to do in order to gain the confidence of informal businesses and consequently benefit from the informal sector boom.

 

However, what the government can do is stop the under-economy from growing, particularly by dealing with the problem of synthetic substance abuse (particularly Chrystal meth and cocaine) which are fueling violent crime.

 

I’ve argued before and I’ll state again here that if the drug problem in the under-economy is left unabated, Zimbabwe will in the not too distant future become a country like Mexico which is largely controlled by drug cartels and gangs.

 

Judging from the national trend of machete gangsters, we are clearly heading in that direction.

 

Tau Tawengwa

 

Executive Director

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