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Nqobile Bhebhe, nqobile.bhebhe@chronicle.co.zw
GOVERNMENT crackdown on illegal imports that have flooded the informal sector could benefit formal businesses such as OK Zimbabwe, which face excessive competition, securities firm, Morgan & Co has noted.
Major retail outlets, clothing entities, hardware shops and other formal enterprises face stiff competition from informal traders who import goods without adhering to local tax and duty regulations.
Stakeholders have urged the Government to take decisive action to address the informalisation of the economy, warning that the continued growth of the informal sector risks destabilising the country’s formal retail and manufacturing industries.
Last year, a research paper indicated that the informalisation of the economy cost Zimbabwe at least US$1,15 billion in potential fiscal revenue between 2020 and 2023.
The findings came at a time when industry experts bemoaned the widening levels of informality across business sectors, which is threatening to choke the manufacturing industry.
Last week, leading retailer, OK Zimbabwe, reassured stakeholders of its continued viability as a business despite experiencing intermittent product supply challenges during the festive season.
Acknowledging facing intermittent product supply challenges during the festive period, OK Zimbabwe said it will continue to serve its customers and contribute to the country’s economic growth and development.
It pledged to restore normal supply levels while working to stabilise the trading environment in collaboration with key partners.
In its recent analysis of OK Zimbabwe’s financial results for the half-year that ended September 30, 2024, Morgan & Co said tight monetary policies, constrained disposable incomes, taxes and suppliers’ growing preference for the near-cash informal market continue to add pressure to OK Zimbabwe’s bottom line in the absence of exchange gains.
“However, policy shifts and a crackdown on illegal imports could drive sales back to the formal sector, albeit marginally.
“We also note the organic growth as a way of maintaining sales volumes in the second half.”
OK Zimbabwe reported a growth in total revenue anchored on a 28 percent increase in sales volumes.
Promotional activity, particularly the OK Grand Challenge Promotion, was the key driver behind sales volume growth, which included the group’s OK Mart stores.
Resultantly, the gross margin improved by 2,81 basis points to 19,64 percent.
The challenges faced by OK Zimbabwe highlight broader difficulties within the formal retail sector, which continues to grapple with competition from the growing informal economy.
Calls for the formalisation of businesses have intensified as the informal sector increasingly undermines the viability of established retailers.
Major players across various sectors, including food, clothing, textiles and footwear, have reported declining performance due to the influx of non-duty-paying imports and counterfeit goods.
Last year, Truworths, a prominent player in the textile industry, revealed that its business was struggling to compete with cheap imports priced below local manufacturing costs.
The trend is not unique to Zimbabwe as it cuts across Africa and beyond, and in the process erodes the revenue base for governments as most informal economy players are not tax compliant.
The high level of informalisation has resulted in the size of Zimbabwe’s economy being understated while making it difficult to account for the activities of all economic agents for tax purposes.
Most captains of industry and commerce are of the view that the rise of the informal sector while creating opportunity for ordinary people, is a threat to the established productive sector players and the growth of the country’s economy at large.
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