Manufacturing sector feels informalisation onslaught

EXPERTS have said the fast rate at which the manufacturing industry is succumbing to the effects of the resurgence informal sector is alarming and threatens prospects of turning around the country’s economy.

A number of captains of industry and economists are of the view that the alarming rise of the informal sector was a threat to the country’s productive sector and the growth of the country’s economy.

Confederation of Zimbabwe Industries (CZI) vice-president Mr Joseph Gunda said the country’s manufacturing industry has been on a decline for the last two decades and was experiencing one of its worst performances in recent years.

“The productive sector is in the intensive care and there is a need to extend a lifeline in the form of fiscal incentives. The pockets of growth, resilience and survival while positive are also a huge indicator of disequilibrium in the economy and in the manufacturing sector. A few companies are registering growth, others are in decline while others are closing and this reality is reflected in declining employment figures and the decline in the manufacturing contribution to GDP (Gross Domestic Product),” he said.

Mr Gunda said the manufacturing sector was still suffering from multiple taxation region.

“The sector has been hamstrung with multiple and high taxation which is in corporate tax as well as through various regulations that are an effective tax on business. Rationalisation and streamlining of regulations is critical to reduce the effective tax on business. The state of the manufacturing sector is a serious cause for concern and the Government should aim at unlocking some productive capacities to get the sector back on a sustained growth path,” he said.

According to the CZI annual manufacturing sector survey capacity utilisation grew by 11,7 percent from 2014 to 2018 but it is estimated to decline by 18 percent in 2019.

Mr Gunda said the decline in productivity was a culmination of a myriad of challenges the manufacturing sector has been facing over the years ranging from foreign currency shortages, power outages, high cost of production, inadequate capital for retooling, unavailability of lines of credit, competition from imported goods, high bank interest rates, smuggling of goods into the country and inefficient clearing system at borders.

“All these challenges have resulted in the informal sector to become stronger at the expense of the formal sector leading to informalisation onslaught. The country has allowed the manufacturing sector to be in perpetual decline and operating at below 50 percent capacity utilisation for the past 10 years, without that decline being a cause for alarm and urgent action. As a result, manufacturing jobs have been lost and the economy has continued to informalise to the point of attaining second position informal economy in the whole world at 60 percent informalisation according the IMF (International Monetary Fund) Report on Shadow Economies Around the World,” he said.

Economic analyst and National Business Council of Zimbabwe (NBCZ) leader, Dr Keith Guzha said there was a need for the Government to come up with a position to formalise the informal sector so as to ensure its contribution to the country’s economy.

“At NBCZ, we have been pushing for formalising the informal sector, a position that will allow Government to tap into tax base of over $7 billion, according to reports 2016. As it stands, the country’s industry is struggling and operating at less than 30 percent capacity and therefore creates an imperative situation for Government to revisit its position. A carrot and stick approach will help informal businesses formalise their operations,” he said.

Confederation of Zimbabwe Retailers Association president Mr Denford Mutashu reiterated Dr Guzha’s sentiments stating that all sectors should play a part in contributing towards the country’s GDP.

“The informalisation onslaught is a serious threat to industry sustainability. There is a need to correct the economic structure and get everyone to contribute equally to the fiscus. There should be a deliberate policy to converge the informal sector with the formal one,” he said.