Stop being crybabies
REGISTERED retailers must innovate to retain a better competitive edge in an environment where informal traders are posing growing competition and encroaching into spaces traditionally dominated by large traders.
Finance and Investment Promotion Permanent Secretary Mr George Guvamatanga said this in an interview following reservations expressed by OK Zimbabwe, the country’s largest retailer, over the threat of informal traders.
OK claimed most formal retailers were now battling for survival due to the rise of the unregulated informal operators, “who are mostly arbitraging”, a scenario which it said has “caused more headaches than good for the formal guys like OK Zimbabwe, TM Pick n Pay, Gain Cash & Carry and so many more”.
“This has created a whole new spate of dangerously unhealthy competition,” OK bemoaned.
The retail giant claimed formal traders were always at a disadvantage because they pay taxes and are subjected to the regulated official exchange rate, unlike informal traders, which caused artificial or distorted price points in the stores.
This, OK Zimbabwe said, had the potential to cause the “forced death” of the formal retailer.
But Mr Guvamatanga said the Government was not pitting formal and informal traders against each other nor condoning informal trade, for which no taxes or statutory charges and heavy costs are paid, a situation that gives the latter a stronger head start competition-wise.
He said informal traders still need to register, pay taxes and meet other financial obligations. He called on large retailers to find innovative ways to regain competitive advantage considering that they also enjoy some of the benefits not available to small traders.
Some of the informal traders, especially in downtown Harare, move large volumes of goods running into millions of US dollars and collectively account for the bigger chunk of what certain manufacturers sell to the domestic market.
Sources say the informal traders are also prioritised because they pay cash and in foreign currency.
“I am not against tuck shops, I am not against big retailers. As a Government, we support any law-abiding entrepreneur who complies with Government structures that are in place. Those are the ones that we support, but it is not this one versus the other.
“We are not saying tuck shops must close down so we remain with big businesses only or that big businesses must close down so that only tuck shops remain. That structure, in the retail and distribution sector, big retail, and the micro is like that globally.
“In Zimbabwe, the monopoly big retailers enjoyed was an anomaly actually, that big supermarkets operate without (formidable competition) was actually an anomaly that was within the structure of the economy.
“Just for the sake of convenience and other things, these small shops serve a purpose because they are nearer to the people and they are also able to break bulky things into smaller units, which is affordable and accessible to people within their income level.
“So, they are necessary, but they have to be formal, they have to be legal, they have to bring their things legally and have to pay the necessary taxes that they must pay, but what you find in most other countries actually is that they always have a competitive advantage, including in countries like the USA and the UK.
“This is because they would ordinarily fall below the taxable threshold. Elsewhere, they are always cheaper because they fall below the taxable threshold. So, the strucfor ture, instance in South
Africa, is a
60-40 (market share) structure,”
Mr Guvamatanga said.
He added that his call for large retailers to innovate also stemmed from observations of trends in other countries, for instance, South Africa, where retailers like Woolworth and Shoprite have set up bases in areas where informal traders are concentrated.
The Finance and Investment Promotion permanent secretary said large retailers were losing customers to small unregistered traders because their prices “are so uncompetitive”.
Mr Guvamatanga also dismissed claims that small unregistered traders had an unfair advantage because they do not pay taxes, import duties and other statutory charges, saying
“the tuck shops predominantly sell the basic commodities, which don’t have duty or VAT at the moment”.
“So, that duty and VAT (exemption) is available to OK Zimbabwe and Pick n Pay for the same product, that is my point, to say all the basic commodities, which OK, Spar, Pick n Pay, tuck shops are bringing duty-free, VAT free, they are still more expensive in (large retail outlets) than tuck shops,” he said.
This, he said, was despite the fact that the large retailers enjoy economies of scale and, therefore, better procurement prices.
“So, let’s not argue about them paying duties, them paying taxes on everything else. Let’s just take the basket of goods where no one is paying duty, including them, they are still quite twice the prices (of small traders),” he said.
Mr Guvamatanga also stressed that most of the large retailers had no valid case claiming unfair competition on the basis that informal traders charge exclusively in US dollars while they are forced to sell in both the local unit and foreign currency using the official exchange rate.
“They have been breaking the law because they (also) price their goods exclusively in US dollars and convert to Zim dollars. Have we gone there to ask, and are they not breaking the law? Do they think we are not aware? So, that is why I am saying they should innovate and think through it. My point was they cannot complain about tuck shops, they cannot complain about the environment because it is the same environment for everyone,” he said.