By A Correspondent
In an aggressive attempt to reshape Zimbabwe’s economic framework, the government has imposed new measures aimed at integrating the informal sector into the formal economy.
While the move, outlined in the 2025 Monetary Policy Statement, is presented as a path to economic stability, it is also being met with criticism for its insensitivity to the realities of small businesses and entrepreneurs in the informal sector.
The government’s approach has placed these businesses in a tight corner, forcing them to comply with policies that may undermine their survival and growth in an already fragile economy.
For many Zimbabweans, the informal economy has long served as a lifeline, providing employment and income opportunities in the face of economic instability, inflation, and a struggling formal job market.
The sector has thrived in large part due to its flexibility, with businesses relying on cash transactions and operating outside of the formal regulatory environment.
Yet, as inflation and the currency crisis continue to plague the nation, the government views formalization as a critical step to stabilizing the economy, boosting tax revenue, and ensuring transparency.
However, this aggressive push to formalize the informal sector seems to overlook the severe challenges small business owners face.
The government’s insistence on mandatory bank accounts, the adoption of dual-currency point-of-sale (POS) systems, and the embrace of electronic payments may be an attempt to modernize the economy, but it risks alienating and burdening the very people it aims to help.
Government’s Insensitivity to Informal Sector Needs
Dr. John Mushayavanhu, the Governor of the Reserve Bank of Zimbabwe, has defended the formalization policy, emphasizing that it is necessary to foster growth, efficiency, and accountability. According to Dr. Mushayavanhu, integrating the informal sector into the formal economy is essential for improving investor confidence and production capacity. However, the new measures seem to fail in addressing the day-to-day struggles faced by informal business owners.
Small businesses, which operate in an environment of high inflation, rising operational costs, and limited access to resources, are already at a disadvantage. Many in the informal sector rely on cash-based transactions because they do not have access to banking services, and many business owners are simply not equipped to manage the financial complexities that come with formalization. The new regulations, which include the opening of bank accounts and the integration of electronic payment systems, may appear straightforward on paper, but they overlook the financial and logistical barriers faced by many small-scale entrepreneurs.
Furthermore, many small business owners fear that the additional costs associated with meeting these requirements will force them to shut down or drive them further into the shadows of the informal economy. The government’s approach seems to place formalization as an expectation rather than an option, leaving little room for the informal sector to adapt in a way that is manageable for them.
The Danger of Pushing the Informal Sector Deeper Underground
As the government pushes for formalization, a growing concern is that these policies may actually drive informal businesses further into the underground economy. Instead of encouraging businesses to register and contribute to the formal economy, the burdens of compliance could prompt many to avoid government scrutiny altogether. This could lead to an expansion of the unregulated sector, ultimately defeating the purpose of the reform.
The pressure to comply with increasingly complex regulations may create a situation where only the largest businesses in the informal sector are able to make the transition to the formal economy. Smaller enterprises may choose to remain off the grid, thereby reducing the effectiveness of the government’s economic reforms. Additionally, this could exacerbate the challenges of tax collection, further impeding the government’s ability to stabilize the economy.
The Need for a More Sensitive and Supportive Approach
The government’s current approach shows a lack of understanding of the challenges faced by informal sector entrepreneurs. While formalization may bring long-term benefits, the transition needs to be gradual, with sufficient support for small businesses. Rather than mandating immediate compliance, the government should consider incentives such as tax breaks, access to affordable financial services, and simplified registration processes. These measures could encourage businesses to formalize at their own pace, without the fear of stifling their operations.
Financial literacy programs that focus on the practical benefits of banking, electronic payments, and tax compliance could also help small businesses navigate the formalization process. Furthermore, the government must acknowledge the need for better infrastructure, including accessible banking services, in rural and remote areas where many informal businesses operate.
Looking Forward: Reassessing the Strategy
Zimbabwe’s informal sector has long provided a critical safety net for the population, offering opportunities where formal employment has been scarce. The government’s 2025 agenda, with its push for formalization, could potentially modernize the economy and create greater fiscal transparency. However, this must be done with careful consideration of the informal sector’s needs and challenges.
If the government remains insensitive to the reality of the informal sector’s struggles, its policies may cause more harm than good, pushing businesses further away from the formal economy and stifling innovation in the process. A more balanced, empathetic approach is needed—one that combines regulation with meaningful support. This approach would allow the informal sector to thrive within the formal economy, contributing to a stronger, more stable economy for all Zimbabweans.
Ultimately, the success of these reforms will depend on the government’s willingness to listen to the concerns of small business owners and provide them with the tools and resources they need to succeed. Without this, the formalization process risks becoming a burden that drives many entrepreneurs out of business rather than helping them to thrive.