Zimbabwe's formal economy tanks

Zimbabwe's economy has become overwhelmingly informal, with the latest figures from the Zimbabwe National Statistics Agency (ZimStat) revealing that 76% of business operations in the country are now informal. This represents a sharp increase from 60% in recent years, highlighting the growing strain businesses face from taxation, over-regulation, and policy inconsistencies.

The findings, based on preliminary results from Zimbabwe's first-ever Economic Census covering the period June 2024 to March 2025, paint a concerning picture for economic planners. ZimStat director-general Tafadzwa Bandama described the data as "a major milestone" that would support economic planning and inform industrial strategy under the National Development Strategy 1 (NDS1) and the upcoming NDS2.

"A total of 204,798 establishments were found to be operational, of which the majority (76.1%) were informal," ZimStat stated at the release of the results in Harare.

By definition, informal businesses are not registered with the Registrar of Companies, Zimbabwe Revenue Authority (Zimra), or National Social Security Authority (Nssa), and often lack proper recordkeeping.

The remaining 23.9% of enterprises were formal, although the bulk of these were micro-firms. In fact, 87.9% of all formal establishments were classified as micro-enterprises. All 2,031 large companies operating in the country were formally registered.

ZimStat further noted that the wholesale and retail sector dominates Zimbabwe's business landscape, accounting for 73.13% of all establishments, followed by manufacturing at 8.24%. Alarmingly, only 19% of manufacturers are formal, raising concerns about the safety and quality standards of unregulated goods.

The southern city of Bulawayo posted the highest proportion of formal businesses at 40.4%, but most provinces had less than 30% formalisation.

Macdonald Mutengo, economic research officer at the Confederation of Zimbabwe Industries (CZI), said the numbers confirmed what businesses have long feared — a shrinking formal sector under immense pressure.

"Less than a quarter of businesses are formal, and they are the ones carrying the burden. They are highly regulated and being squeezed," said Mutengo.

He noted that the contribution of corporate tax has declined sharply, from 20% in 2021 to just 8% in 2024. Mutengo attributed this to overregulation and rising compliance costs.

"We found that about 80% of corporate costs are related to regulatory compliance. It's crippling businesses," he said. "Yes, companies have a duty to contribute, but the economic ‘cake' is just too small. We need to encourage formalisation."

He also expressed grave concern about informal activity in sectors like manufacturing. "Their standards are nasty and potentially harmful," he warned.

Other sectors such as finance, ICT, mining, construction, and professional services remained underrepresented, each contributing less than 2% of the country's total businesses.

Despite repeated calls from business associations and consumer groups for reforms to reduce red tape and restore business confidence, authorities have shown little willingness to shift course.

In a related report, the Financial Intelligence Unit (FIU) noted a rising trend of companies diverting foreign currency into informal, cash-heavy ventures. These firms reportedly use directors and couriers to move funds off the financial grid.

Even at the previous informalisation level of 60%, the central bank had estimated that the informal sector generated an annual US$14.2 billion, with US$2.5 billion in active circulation.

The latest data suggests that Zimbabwe's economy is operating increasingly outside official channels — a sign of survival, but also a red flag for the country's long-term growth and stability.