Zim Economic Crisis : Will Mthuli’s Plan Make A Difference?
3 February 2025
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By A Correspondent

Zimbabwe’s economic crisis continues to worsen, and Finance and Investment Promotion Minister Mthuli Ncube’s recent remarks about the role of the informal sector offer little hope for resolution.

Ncube placed blame on the informal sector for the difficulties supermarkets are facing, claiming it is the “competition from the informal sector” that is exacerbating the situation. However, this explanation fails to address the deeper systemic issues at play.

In a statement released on Friday, Ncube argued that the economic troubles stem from informal traders who are bypassing formal retail channels. “Since the beginning of 2023, some manufacturers have been opting to supply their goods directly to customers and informal retailers, bypassing wholesalers and retailers,” he said. According to Ncube, this practice has put formal businesses in direct competition with the informal sector, which operates outside of formal regulations, including taxes and labour laws. This, he asserts, has led to the closure of some supermarkets and stores.

However, while Ncube’s comments focus heavily on the informal sector, they overlook the internal failures of formal businesses. He acknowledged that “poor management and poor corporate governance” have contributed to the struggles of some large retail chains, leading to business closures. This raises the question: is it fair to solely blame informal traders for the crisis when formal businesses are also facing significant challenges due to mismanagement?

Ncube’s statements come in the context of a worsening economic situation in Zimbabwe, where rising inflation, high unemployment, and unsustainable living costs continue to drive many businesses and individuals toward the informal economy. Despite efforts by the government to tackle the issue, such as the introduction of a 5% withholding tax on unregistered micro and small enterprises (MSMEs) and a reduction in the VAT registration threshold, the informal sector remains a substantial force in the economy.

To address the impact of informal trading, Ncube outlined measures in the 2024 Mid-Term Budget and the 2025 National Budget, including the mandatory use of Point-of-Sale (POS) machines by all informal traders and a crackdown on goods deemed “smuggled.” While these measures may contribute to improving compliance, they fail to address the underlying issues facing both formal and informal sectors. In his statement, Ncube also proposed additional actions, such as “leveling the playing field between formal and informal businesses” and “enforcing collaboration between Local Authorities and Central Government in the licensing and enforcement processes.”

Yet, the central issue remains unaddressed: the government’s failure to create an environment where formal businesses can thrive, and where the informal economy is better integrated into the national economy rather than treated as a scapegoat.

“Research and consultations indicate that some of the reasons formal businesses are experiencing distress include competition from the informal sector, poor management, and poor corporate governance,” Ncube said. Yet, the constant focus on competition from the informal sector diverts attention from the real need for a comprehensive economic overhaul.

The government’s proposals include enforcing international best practices for tax compliance, strengthening enforcement through a Domestic Interagency Enforcement Team, and introducing additional incentives to support local industry. However, these measures might not be enough to tackle the root causes of Zimbabwe’s ongoing economic crisis.

In conclusion, while Mthuli Ncube has proposed several steps aimed at formalizing the informal sector and promoting tax compliance, the economic crisis in Zimbabwe cannot be solved by simply blaming the informal economy. A more holistic approach is needed—one that addresses poor governance, supports business growth in both the formal and informal sectors, and ultimately creates a sustainable economic environment for all Zimbabweans. As the country moves toward Vision 2030, it is clear that without deeper structural reforms, the crisis will persist.

Minister Mthuli Ncube’s focus on external factors, while important, misses the bigger picture, and it’s time for a shift in focus toward real economic solutions.