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‘Zim economy to remain informal’

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. . . unless farming goes commercial

ZIMBABWE will remain a largely informal economy into the foreseeable future unless farming, accounting for 18% of gross domestic product (GDP) as of 2015, becomes more commercialised, a research firm has said.

Once a fairly highly industrialised country, Zimbabwe is now a largely informal economy after the collapse of thriving manufacturing and agricultural sectors.

Industry is operating at 47% of capacity, according to the Confederation of Zimbabwe Industries (CZI), an umbrella body of the manufacturing sector. More than 6 000 companies have closed shop since  2011, rendering hundreds of thousands unemployed.

Agriculture is the backbone of Zimbabwe’s economy, as Zimbabweans remain largely a rural people, who derive their livelihood from agriculture and other related economic activities.

Agricultural activities provide employment and income for between 60% to 70% of the population, supplies 60% of the raw materials required by the industrial sector and contributes 40% of total export earnings, according to the Food and Agriculture Organisation of the United Nations.

In its latest report titled Zimbabwe Consumer Sector: Loosening The Purse Strings?, IH Securities said the southern African nation’s economy will remain informal into the foreseeable future unless farming becomes commercialised.

“The structure of the Zimbabwean economy remains weighted towards a mostly rural-based population; this population is anchored in small-scale farming and household activities, all broadly classified as informal, implying that scientifically, Zimbabwe will remain a largely informal economy into the foreseeable future unless farming becomes commercialised,” the report reads in part.

“Whilst it is difficult to quantify the monetary size and force of this sector, we believe a useful proxy is agricultural activity and artisanal mining in which many of these participants sit. A vastly improved agricultural performance in the 2020/21 season, particularly in staple crop maize in which a record output of 2.7million tonnes is expected, suggests a likely improvement in food security and potentially higher incomes within this base.”

“The reality is that the informal sector has invariably created a safety net to absorb and sustain Zimbabwe’s labour force in the midst of a decimated formal sector; this sector will house substantive economic activity for some time and will ironically double as both a customer base and an aggressive competitor for consumer companies,” it said.

The International Labour Organisation estimates that more than 66% of total employment in sub-Saharan African is in the informal sector. Faced with a predominantly informal sector, governments have been struggling with how best to respond.

“On the one hand, a large informal sector often adds to city congestion, through informal vending and transport services, and does not contribute to city revenue. While on the other hand, the informal sector provides crucial livelihoods to the most vulnerable of the urban poor. Zimbabwe’s informal sector is credited as one of the reasons local GDP did not retreat to the same extent as peers during the first wave of the pandemic in 2020,” the report said.

According to the International Monetary Fund, the informal sector acts as a “hidden” buffer for shocks in the formal sector such as inflation, currency collapses, company closures and rapid policy changes by accommodating the labour force which cannot be formally absorbed.

“Given the significant proportion of what is classified as informal sector that is active in maize production, tobacco production and mining; certain statistics from sectors can in our view be used as a proxy to see the trend in the informal sector’s earnings,” IH Securities said.

Meanwhile, the report notes that the rate of urbanisation appears to have slowed in Zimbabwe and this is perhaps attributable to low employment opportunities in urban areas relative to the past. Ironically, poverty levels seem to be growing faster within urban areas.
The gross national income (GNI) per capita of US$1 090, when compared to statistics suggesting most individuals earn below US$400, further emphasises the income disparity highlighted by the GINI coefficient.

GNI per capita in real terms has been on a downward trend since 2018 in line with falling production after years of consecutive droughts.

However, a turnaround is expected in 2021 following the above-average rainfall season and increasing agricultural production coupled with a relatively stable currency.

Inflation has slowed from a peak of 837% in July 2020 to 56% as at July 2021.

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