Zimbabwe: The power of the informal economy

We need to harness the creativity in this market and facilitate its further development as opposed to mentally labeling it the" informal" market

Sometime last year, I wrote on new perspectives on the Zimbabwean economy, where I shared with my readers how, in Zimbabwe, because of the high unemployment levels, a significant number of the township population have become entrepreneurs  successfully operating in the informal economy. I called it the second economy but apparently it has now been termed System D- meaning the DIY system where individuals are highly creative and flexible in delivering products and services to a market that they truly understand. System D is made up of  inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes.

I would estimate that this economy, which occupies a significant portion of the 90% of our unemployed people, is worth quite a few billion per annum and cannot continue to be ignored. I also estimate that this economy is probably more active than the first economy, with significant amounts of cash changing hands each day.

To give my readers some perspective, according to Robert Nuewrith, the American journalist and author who described system D,  the so called informal market or system D in the world is worth  staggering USD10 trillion per annum and employs an estimated 1. 8 billion people. It is the third largest economy in the world and is expected to surpass the US economy in about 15 years time.  In other words, it will be the biggest economic sector in the world. According to Neuwirth, it is the economy of aspiration characterized by intelligence, resilience, self-organization, and group solidarity. Smart international conglomerates and brands are already accessing this market by distributing their products directly through vendors and not through shopping malls. It is an inclusive economy that has little barriers to entry and allows an estimated 2/3 of the world's population who are excluded from the formal economy to make a decent living.
In my opinion, corporate Zimbabwe is missing the opportunity to be creative to access this market segment. What invariably happens is that, goods are imported from South Africa or China and distributed quite effectively and cheaply directly to the consumer and thereby sidelining the local big brands who remain in the traditional shopping malls, waiting for customers to come to them.

In Zimbabwe, Ecocash, the money transfer system, has changed the game in the way that money is exchanged in this economy. I am therefore not surprised by the loud protest from our traditional commercial banking sector that still believes that ATM's and banking halls are the way to deliver services to this market. That is not the case anymore, and the sooner our banks realize that the cheese has moved, the better they can reengineer their business models.
Zimbabweans no longer trust banks so they make sure their money is in the banks for the shortest possible time. If they can avoid them, all the better and that's where Ecocash has come in. So instead of fighting technology our banks must be more creative; I agree with Arthur Mutambara on this issue. Ecocash is definitely in the right place at the right time and is poised for an interesting growth explosion. I just hope that corporate greed through excessive transaction charges will not destroy what is a unique social development technological platform. As we all know, monopolies suck.

Another interesting phenomenon in system  D, is that customers are now prefer getting things made as opposed to buying finished products from the shops. Because of our high unemployment levels, a lot of technicians are now self employed and are quite flexible when it comes to supplying services to this market. They will get the customer to buy the materials and they will make whatever the customer wants according to the customer's specifications at a fraction of the price of the finished products offered by some of our local companies. Electricians, plumbers, carpenters, painters, mechanics, builders, tailors, cobblers and more are interacting directly with this market on a daily basis. Business is no longer in the high rise offices in town but in the dusty streets of our townships.

What we therefore need to do is to harness the creativity in this market and facilitate the development of this market as opposed to mentally labeling it the" informal" market.  In the many economic blue prints that I have read, I have noticed this incessant focus on the aim to integrate the informal market into the formal market, but this need not be the case. We need to focus on further enabling the so called informal market to grow because it is inclusive in nature and has a much higher social impact potential that the first economy. For example, our local authorities are using old licensing laws that sought to protect the first economy by arresting and harassing vendors while discouraging entrepreneurship and creativity. This is an old economic model.

In my opinion, we need an intelligent and new approach that appreciates that it is no longer business as usual. What we need to ask is; how can we nurture this new phenomenon but ensure that income taxes are collected without necessarily formalizing it?

The future is not for the faint hearted.

Vince Musewe is an economic analyst based in Harare. You may contact him on vtmusewe@gmail.com