Home » Business » Formalising the Informal a Critical Step

The informal sector is the most dominant business in the world today and is made up of a populace with productive skills who have been excluded from the mainstream economy by discriminatory systems of one kind or the other. It is against this backdrop that there is need for formal institutions to support and change their attitude towards the informal sector.

Indications that Government will formalise small and medium enterprises (SMEs) so that they pay taxes and contribute to the country’s economic growth are welcome.

The magnitude and the contribution of the informal sector and SMEs in the economy and poverty reduction should not be underestimated.

Operators must be given a fair platform to unlock their potential and Government should generate the requisite institutional capacity for indigenous business development. There is need for the Government to examine various operational challenges that small and informal businesses face, and some formalisation obstacles that small and medium enterprises cite as the primary reasons for not registering their business.

The formalisation of these small business will empower youth especially those who did not manage to acquire at least five subjects at O Level and at best those who were unfortunate to miss formal education.

Government should therefore come up with a body to regulate these enterprises in a bid to make sure that they are not harassed and that they pay taxes in a manner agreed by the government.

There is also need for the government to provide necessary infrastructure to open avenues for organised informal businesses to join schemes such as medical aid and pension. The informal sector in the country is very big, and growing but faces challenges, from antiquated equipment to anachronistic colonial laws that made the informal workplace illegal.

Even the education that the colonial system used made people ashamed or feel pity for themselves if they ended up in the informal sector. The economic realities of today dictate a change of attitude both by Government and individuals. Zimbabwe needs to focus its attention on how to improve financial inclusion.

Unregistered firms bank on informal financing, which although important in facilitating access to finance, is associated with lower firm growth and increased firm illegality. Financing constraints are also magnified for informal firms, which tend to be small in size. Their small size means that they will be unable to secure loans that require security in terms of big immovable and movable properties. The small trader in Mbare or artisan at Magaba will not be able to have that. Yet, the informal sector should not be ignored even when they are perceived to be less productive than formal enterprises. They contribute significantly to economic activity and employment.

While informational asymmetries are persistent, and risk management systems are not robust, a new focus and thrust will ensure that there are mechanisms that incorporate this vital sector.

The informal sector needs to be mobilised, allocated resources, and manage risks thereby contributing to private sector development. The development of the SME has become a world phenomenon which the country should emulate.

In most countries, the growth of SMEs is enabled through policymakers’ attention to support with working capital, easing access to finance, implementing a better regulation agenda and encouraging SME investment in new technologies and markets.

Studies in the United States revealed that small and medium enterprises play an outstanding role in driving gross domestic product (GDP) growth and sustaining employment. Government’s decision to formalise the informal sector will go a long way in creating jobs and helping thousands of people who are living below the poverty datum line in the country.

Source : The Herald