Harare’s informal traders pose economic challenge to Zimbabwe – Zimbabwe Post

Harare, the capital of Zimbabwe, is undergoing rapid transformation, with a surge in small, informal shops, known locally as “tuckshops”.

While these businesses provide much-needed employment for many citizens excluded from the formal labor market, they operate outside the tax system, posing significant challenges for governments.

The rise of these informal shops has led to the decline of established retailers and wholesalers, complicating the government’s efforts to formalize the economy. Economist Farayi Muthambaningwe warned that the trend is not good for the country’s economic health.

“A country usually wants its economy to be made up mostly of large formal businesses,” Muthambaningwe said. “When informal businesses start to dominate, it not only degrades the quality of the central business district (CBD) and reduces property values, it also leads to tax evasion, the use of informal business channels, and increased dollarization of the economy. All of these factors have a negative impact on the economy.”

A major problem is that many small shops sell illegally imported goods, further complicating the situation. The government is concerned that this trade bypasses the tax system, depriving the state of important revenue. The continued growth of these informal shops poses a major challenge to policymakers, as tax evasion and tax avoidance become increasingly common.

The Minister of Publicity, Information and Broadcasting Services, Dr Jenfan Muswere, highlighted the problem, noting that “the proliferation of smuggled and counterfeit goods creates unfair competition with local products as they are not subject to taxes and import duties.”

Zimbabwe is grappling with an ongoing drought that has further weighed on its economy, with the finance minister warning in July that the budget deficit was expected to reach 1.3% of gross domestic product in 2024.

Economic growth is expected to be 2% in 2024, down from a November forecast of 3.5%. The rise of informal kiosks will only make it more difficult for the government to stabilize the economy and generate revenue through formal channels.

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