Home » Business » Time to Harness Informal Sector [editorial]

REMARKS made by Small and Medium Enterprises Development Minister Sithembiso Nyoni last week that as much as US$7,4 billion could be circulating in the informal market made quite interesting reading for a country in a liquidity crisis.Assuming the estimated amount is significantly close to reality, it means there is huge scope to tap into these resources for purposes of increasing inflows to Treasury and ameliorating the liquidity crisis pervading the entire economy.

Economists have pegged the amount circulating in the informal market to US$2 billion, attributing the non-banking of these funds to high charges from the financial services sector.

It is easy to understand why this is happening most people have relinquished the culture of saving using formal financial institutions after losing confidence in the banking sector.

This was due to the experiences they went through at the height of the country’s economic crisis. As such, people chose to keep their hard earned cash stashed away in their homes rather than take it to banks where apart from the low confidence in the banking system, financial institutions nibble away the funds through punitive withdrawal and accounts maintenance charges.

As such, there is need for concerted effort to establish the amount circulating in the informal sector through a scientific process before devising ways in which the unbanked funds can be harnessed for productive purposes.

The Bankers Association of Zimbabwe recently said it was embarking on a study to ascertain the actual amounts of money circulating outside the formal banking system in order to devise mechanisms of mobilising such funds.

After that it would be equally important to rebuild public confidence in banking and to vigorously educate the people on potential benefits of using formal banking channels.

Concurrent to that, banks would need to find solutions to addressing concerns around the issue of high charges and interest rates, which militates against mobilisation of deposits.

However, the biggest challenge would be to formalise the informal sector by ensuring that they are registered so that apart from banking their funds, they also pay taxes, which would go to Treasury and benefit the our economy.

Government recognises the importance of the informal sector to economic growth, more so, as it comes when most big firms have folded, but does not have a definitive strategy of helping them to grow into competitive world class enterprises.

In his 2014 National Budget statement, Finance Minister Patrick Chinamasa acknowledged that the economy has undergone significant structural transformation in the past decade, with the informal sector now the dominant force. This realisation and identification of the significance of the sector calls forth for the need to develop mechanisms to make sure that the contribution of the sector is captured and is utilised for the development of the country.

The performance of the informal sector has a major impact on the performance of the wider economy. Despite the sector not falling under the armpit of the tax man, the sector indirectly contributes some significant amount to the fiscal revenues through VAT.

Given that the informal sector employs a significant amount of the people who are supporting the majority of the households in the country their purchasing activities of the various household consumables and capital goods significantly contributes to the VAT. In this regard any measure that the Government takes to promote this sector will assist in achieving economic targets.

Source : The Herald