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INFORMAL ECONOMY FORMALISATION IN ZIMBABWE UNDER NATIONAL POLICY FRAMEWORK THEME 4 – FORMALISATION

The Objective of this Theme is the provision of access to economic freedom and social protection to informal economy businesses, in order to provide sustainable jobs and income for informal economy workers.

Section 65 of the Constitution of Zimbabwe Amendment (No 20) Act, 2013 provides for the labour rights of all workers including the right to form and join trade unions and employee organisations of their choice and to participate in the lawful activities of these unions and organisations. The rights of workers in the informal sector must be recognised and protected.

According to International Labour Organisation (ILO) Recommendation 204 (2015), formalisation of the informal sector is not simply registration of informal businesses as legal entities that yield tax revenues, but rather a rights-based transition that provides a convenient way in which micro and small businesses can be registered as legal entities.

1. Identification and Recognition of the Informal Economy

In order to formalise the sector there is a need for a process to identify and recognise the activities and participants in the informal economy. The informal economy should be included in all national dialogue platforms such as the Tripartite Negotiating Forum (TNF) and other policy-making bodies.

Previous policy initiatives on the informal economy have been top-down in their approach to formalising the sector. The process should be stakeholder-driven through meaningful consultation with all key stakeholders. Such a policy process will also then inform local authorities, who interact with the informal economy on a dayto-day basis, with regard to their by-laws. The informal economy should be seen as a development partner.

The informal economy is usually considered as a homogenous block, yet it consists of four separate groups:

i. Survivalists
ii. Informal entrepreneurs
iii. Entrepreneurs with capacity to formalise but choose not to iv. Workers in the informal economy

The approach to formalisation should take cognisance of the subtle differences between these four groups and seek to engage them all in decision-making processes.
Policy changes should therefore be progressive and based on economic fundamentals, facilitating the ease of doing business – rather than being punitive.

There is a need for constant improvement in respecting the rights of those in the informal economy. Once the human rights of those in the informal economy have been fully recognised by government, local governments will be compelled to adjust their by-laws to recognise and protect informal economy workers and businesses.

2. Recognition of the Benefits of Formalisation

While the major concern of the government regarding the informal economy focuses on legality, taxation and standards, it is equally important for formalisation to be considered in terms of value-addition to the informal trader. Awareness-raising efforts need to show the informal trader the value of formalisation, including:

i. Social protection
ii. Access to finance and capital
iii. Access to profitable markets iv. Relaxation of laws, some of which are archaic
v. Simplification of registration processes

It is therefore essential that those in the informal economy receive education and training on the reasons and benefits of formalisation. They must know the benefits so that they will co-operate in the formalisation process.

Licencing for informal economy businesses, traders and vendors must also be easy and affordable.

3. Ratification and Domestication of ILO Recommendation R204

The basis for policy on formalisation must be ILO Recommendation R204, which requires full acceptance and adoption by government. Government’s formalisation programme and agenda must also have a budget allocated to it.

4. Private Business Corporations

The principles of the private business corporation, provisions for which are now included in the new Companies and Other Business Entities Act, can assist in formalisation as registration as a PBC is cheaper than that for a company and the concept is simpler. Up to 20 members in a PBC are allowed and the rights and privileges of a PBC are similar to those of a company. PBCs can bid for official tenders. 

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