Informal economy is a dead economy – Biti

via Biti says the informal economy is a dead economy 04 February 2014  by Charles Rukuni InsiderZim

Movement for Democratic Change secretary-general Tendai Biti, who was Finance Minister just seven ago, today said the informal economy is a dead economy and it was a tragedy that the government was celebrating the creation of such an economy.

According to a statement released by the party after his press conference in Harare, Biti said 84 percent of the formal sector had collapsed and the government seemed not to have a clue about what to do.

“84 percent of the formal sector has collapsed. Day to day, we are seeing the deindustrialisation of the formal sector. The problem of the informal economy is that it is a dead economy that does not pay taxes and it is a tragedy that this clueless government of the day is celebrating the creation of the informal market,” he said.

As Finance Minister Tendai Biti said on 7 June last year the informal sector employed 3.7 million people and generated US$1.7 billion a year.

He argued that unemployed in the country was only 9 percent and nowhere near the 85 percent often touted.

“We have always had this argument about what is the percentage of people that are employed or unemployed in Zimbabwe. Textbook economists will say 85 percent but that is not true. If we had a population like that most people in Zimbabwe would have died, it is not possible,” he said at the launch of the Poverty Income Consumption and Expenditure Survey by the Zimbabwe National Statistics Agency.

“One is either a farmer, selling juice cards (airtime vouchers), driving an emergency taxi or you are working as a hair dresser. The fact of the matter is most people are economically active.”

Below is his full statement:

Tuesday, 04 February 2014

Zanu PF government abandons the people – Hon. Biti
The national economic and political crises in the country are characterised by heavy deindustrialisation, a serious cash crunch and a national debt crisis, Hon. Tendai Biti, the MDC Secretary General and shadow Minister of Finance and Economic Development said today.

Addressing a press conference at the party’s headquarters, Harvest House in Harare, Hon. Biti said the MDC will not bury its head in the sand and ignore the national crises that are affecting Zimbabwe.
“There is no question that Zimbabwe is mired in a serious, deep crisis,” he said.

“There is confidence breakdown of the social contract, collapse in government revenue, capital account deficit. There is no doubt that the government of the day is no government as it is clueless, impotent, sterile, idea free and indifferent,” said Hon. Biti.

He said it was evidenced in the past six months that the Zanu PF government had no capacity from an economic point of view to govern.

“84 percent of the formal sector has collapsed. Day to day, we are seeing the deindustrialisation of the formal sector. The problem of the informal economy is that it is a dead economy that does not pay taxes and it is a tragedy that this clueless government of the day is celebrating the creation of the informal market,” he said adding that Zimbabwe needed US$4 billion in order to resuscitate key sectors such as mining, agriculture and rail cargo transport.

“That the (NRZ) National Railways of Zimbabwe has collapsed is an indictment to the Zanu PF government,” said Hon. Biti calling upon Zanu PF to be pragmatic and honest by engaging the international community in negotiations.

Turning to corruption that has rocked most parastatals over illicit salaries, Hon. Biti said the people of Zimbabwe been shocked by this level of corruption by Zanu PF linked officials and called for the establishment of an independent commission of inquiry that is headed by a retired judge.

“What has been disclosed so far is a tip of the iceberg. Suspending the board chairperson or firing the CEO is not enough. The commission of inquiry should look into all these scandals,” he said.

Hon. Biti said that the populist policies of Zanu PF, in slashing of rates, had led to the failure by local authorities to pay even basic salaries and called on the government to provide grants to the authorities so that they are able to provide better service delivery.

“We believe that logic should prevail. The government should provide a grant so that the local authorities will not fail to provide rudimentary services,” he said adding that it was a crime and unconstitutional for Zanu PF to fail to pay school fees for over one million children through the Basic Education Assistance Model (BEAM).

The government has abandoned its role of leading and this has led to the unprecedented suffering that the people are going through. The avenues of surviving are very minimal,” said Hon. Biti.

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16 comments on “Informal economy is a dead economy – Biti
  1. farai says:

    Dishonorable Biti, can you explain NASSA’s decision to invest in Capital Bank, externally motivated? Can you Sir, explain your decision to deposit the DEMAF funds in Interfin, was that business or personal? Further, can you confirm that the oversight role over PSMAS was shared between Finance, Health and Labour Ministries? Indications are you, Mr Ex-Minister, are up there amongst the most corrupt ever. As shadow Minister, what is your alternative plan other than “re-engaging the international community” The plan comes from us and not the international community, they would simply impose ESAP.

  2. farai says:

    The country has the $4 billion dollars to revive the economy. The problem is there is no mechanism to mobilize the funds towards the productive sector. If you consider a registered car population of 800 000 vehicles at an average evaluation of $5000 per car you get $4 billion. If you assume a total urban housing population of 1 million dwellings at an average price of $20000 you get $20 billion. Roughly 50% of the cars and most of the houses are idle assets or “investments.” The challenge is to make it more lucrative to invest in productive assets than in idle assets and we can unlock $10 billion dollars minimum to revive the local economy. Ask Dr Dr Clifford Mashiri.

    • Shame says:

      @Farai

      The means to mobilise these funds are there. Take for example NSSA where every salaried citizen contributes towards his retirement pension plus 3% Aids levy clocking over a whooping 20 billion per annum.Or the case of PISMAS medical aid contributions where all civil servants a forced to contribute at least $10 per head- thus raising over $3m p.m or $3.6 billion per annum. Or ZBC where every citizen owning an electronic gadget with analogue to digital decoding system (TV or Radio to be exact)is forced by law to pay a listener’s licence fee-generating over $4 million p.a in car radio licences , and $1 billion in T.V licences p.a (borrowing statistics from your discourse and generously assuming each household has 1 T.V set)Out of all these existing forced fund pools, what has become of it? Cuthbert Dube gets US$6m p.a,Hapison Muchechetere slices$4.8 m p.a. and so on and so forth. You tell me Farai, if forced fund pools are looted like that without any desire to invest into industry, do you see the logic of right minded men voluntarily pooling resources to do sensible business in this country? No, thats right, because, somebody will sooner than later emerge with an act of parliament, a baton stick, or whatever to mob up your dearly sweated for company just for the sake of it. Remeber that story where these two assistant commissioner cops dropped from nowhere and wrestled this cpompany from these two harpless citizens? What with that? Would you stsrt a business or buy a house and a car when you run into free funds? I for one would buy a car which I can drive,or a house which I can rent for one dollar, and those tittle deeds are in my name. Then with the remainder, I would open a very very small tuckshop selling air time, soft drinks and buns-enterprise that does not invite the lascivious, shameless thieving hynas lurking out there and masquarading as ministers, CEOS, and civil society interest groups. That is how the mind of a common, right thinking Zimbabwean works today. And the Zimbabwean economy will forever remain tithered to this mentality until there is political will to cut the theiving beaks of certain malfiscents and reign in the economic lawlessnes and corruption betiding the nation.But until then tough luck! Zimbabwe continues on a freefall to Valhala!

  3. Mukanya says:

    Zimbabwe functions informally and this is reality.

    • In my opinion no country can function informally therefore Zimbabwe at this stage is dysfunctional and I don’t think anybody doubts that. As long as you have a situation where you are unable to monitor what businesses are selling and buying how do you collect the various revenues. I am for the informal sector being used as a stepping stone to the formal sector but the strength of any economically stable economy is it’s formal sector. The informal sector does not create an environment for training skilled people because it depends on selling finished products, in our case from South Africa. If we still had a strong formal sector the informal sector would be buying their finished products from our formal sector and our formal sector would train people to manufacture the products, pack the products and dispatch the products. All these knock on effects create employment and therefore stability.That is just straight forward economics that are learnt in grade 7.

  4. Mixed Race says:

    This is what they did to highly technical formal companies in BYO which were purchased with looted money to reduce them to informal tuck shops which contribute zero to the national income.
    Bulawayo was the envy of southern Africa due to its highly technical companies including metal foundry companies which are now ghost sites.It will take a miracle to get Byo back to its industrial giant status.
    I fully agree with you @Doctor do little,no country can survive on this informal trading.These informal trading jobs are for those who cannot operate complex industries,mainly manufacturing and deep mining, whereby complicated computer controlled equipment is involved to maintain high quality of production.
    Informal against formal is like the rule we apply in any business that is 20% against 80%, in this rule 20% of personnel or items generate 80% of business revenue whilst 80% produce only 20% of revenue.The government should concentrate on formal businesses not these useless informal tuck shops.

  5. farai says:

    With proper structures, support, training, market access and funding today’s informal sector can be tomorrow’s formal sector. We need a venture fund that can take a guy from Magaba to a factory shell, another from the factory shell to a full factory and yet another from being a sole operator to a listing. This is the natural progression of companies. Government needs to support the informal sector to evolve into the formal sector through deliberate targeted programs. We can never revive the Lonrhos, Masholdings, Tinto industries, Anglo, Apex Corp, Olivine, Levers and Johnson & Johnson. Those operators are gone and will not come back. We need to create the conditions for our own formal sector to emerge, develop and thrive, the Chinese won’t do it for us, neither will the South Africans and certainly not the British. Only us.

    • Shame says:

      @ farai

      Agreed, but us includes you,me, poverty drenched cattle rearing honest sekuru in Mutorashanga,the ward councillar of this and that ward in this and that constituency, that thief in five avenue,the corrupt and shameless beak on this and that CEO… You honestly take for granted that money and government support is the missing link in the Zimbabwean economy’s problems. No,money ain’t no problem. Man is the problem. This Zimbabwean man needs to be milled, grinded,processed,pounded, jackhammered, drilled…dried,salted, polished and hung in the wind with a new thought philosophy. Today, he is like a hyna, a jackal waiting to tear at innocent and harpless folks’ sweat. There is no point pooling capital, supporting this type of Zimbabwean man. Its like assigning the salivating hyna over the flock.He will surely bleed every one of them to a carcarse and run the farmer out of flocks.What Zimbabwe needs today is accountabiolity, honesty, intergrity,probity, uprightness, God-fearing, sincerity, transparency… Please look up your Zimbabwean society dictionery for this type of vocabulary? Do you see it outside the Collins Dictionery? It is also not correct to thinkZimbabwe can’t open the Lohnro, Lever Brothers, David Whiteheads….industries. Zimbabweans can do this. After all, who was working there before? You seem to have been swept by the Stockholm syndrome where the victim feels for the hostage taker. Zimbabweans have been colonised for too long some of them think a white skin alone is capable of doing greater things hence it is worthy giving glory to the kneeless race. Do they not say Zimbabweans rank number 1 on the African continent in education and hardwork? That should make us more productive and enterprising than any other Nigger Nation that ever lived on mother earth. Except they don’t say the Zimbabweans rank 3rd in corruption, dishonesty, shortcuts, manipulation, bribery… Isaac Newton needs credit for his laws of mortion. Aforce in one direction= another resistant force of same magnitude (friction). Which therefore brings one to ground zero. Now you ought to know the real Zimbo problem! Corruption, dishonesty, intransigency…Thanx for listening.

    • There is an amaizing infrastructure in Bulawayo that is lying idle and waiting for the right people to revive it. Technology is gone so far in the manufacturing sector that there is no way you are going to move the informal sector to be the formal sector. You need to create an enviroment that will permit companies with this technology to invest in the economy with conditions that they train locals. That is what we call transfer of expertise. If this atmosphere is apparent some of the Investors will be people of Zimbabwean origion that left because the economic climate was not condusive to growth.You might get some companies that have never invested in Zimbabwe stepping in.Some of the old giants might also peep in.The Governments role in this would be restoring services to normal which would employ a lot of people in road repairs, dam building, Electrcity,sewer systems and upgrading of city infrastructures.

  6. Mixed Race says:

    @farai-this was tried before in the form of co-operatives and black empowerment.Did any big companies come out of this exercise? Please educate me by mentioning examples.

  7. Jambanja paSalisbury says:

    Hon. Biti, when you say Gvt should provide grants to City Councils, that is being reckless with your speeches! In one line you are saying the gvt is deficit financing having moved from prime balancing or budget balancing which I take to imply cash budgeting. That makes a lot of sense. Now this broke Gvt, where would it get that money for grants? That does not make sense. Is what you are proposing not contradicting the first statement?
    City councils should simply be financed through the ‘user pay’ principle which this Gvt is destroying through populist policies meant to win votes.

  8. Chamunoda Nyamakate says:

    What is the problem? We have a Government that denying that its policies are not kick-starting the economy. The first thing we need is for government to admit publicly or quietly, that its current policies will not get us and them anywhere. Once this has been done, the Government can then again publicly or quietly put in place policies that will excite potential investors both local and external ones. On the informal vs formal economy, I agree that if most of a country’s economic activity is driven by informal activies, that economy is like toddler still learning to run. The aspiration of any infomal business operator is to become some Lonrho. Meikles or Econet otherswise that operator is a tuckshop keeper. Government must also reduce taxes for both individuals and business and see what happens.
    Someone mentioned something very important.Because of the melt down of the last 15 years, a lot infrastruture needs to be repaired. Road repairs alone can employ thousands. These thousands do not need to be paid cashbert salaries. But guess what, these few dollars in the hands of many can kick start retail business as these labourers buy basics for their families. In turn retailers will demand more from manufacturers. In the end, the whole chain wakes up. I have given just one example of infrastructure here. The same can be said of power lines, telephone lines, school buildings, grass cutting, garbage collection etc. Food for thought Miss Government.

  9. Zindoga says:

    Zim people have brilliant ideas bt no platform to showcase our abilities.i hve read the comments and what im asking u Guys is whats the Way foward?Cant we form an Organisation to loby the Powers that b to support these initiatives

    • farai says:

      Mr Zindoga, the problem we have is a political class that assumes it knows everything. What consultation went into the drafting of ZIM-Asset? None! One clever man drew-up a roadmap then sold it to all now everyone is singing off that hymn book. What is ZIM-ASSET anyway? A top-down approach to policy formulation and implementation never works. I don’t see any efforts to get buy-in from key stakeholders. Another still born initiative if you ask me. There is no substitute to consultation.

  10. farai says:

    @shame, good workers are not necessarily good managers. And by extension good managers are not always good entrepreneurs. Whilst we might have been good workers in the past that work ethic is gone and we have proved ourselves hopeless at running anything other than burial societies and a funeral. The multinational firms that were established during the Rhodesian era were driven by government policy to achieve a specific government policy. Import substitution and self sufficiency. Resources and support were poured into these industries to ensure they survived and thrived. Operational efficiency and profitability were never the primary drivers, that was secondary. The world we live in now cannot allow the protectionist policies that made the establishment of these industries possible. So whilst one might have worked for and even managed Lonrho, you can’t re-establish it! Rather than talk of reviving industries we should instead be talking about establishing industries. It starts in the informal sector. Steve Jobs, Bill Gates and Facebook all started in a backyard garage (informal sector). You cannot revive Lonrho, let that era go. None of the people who have ever bought existing companies locally are doing well, ever wondered why despite them being good workers and good managers previously.

  11. farai says:

    @shame, your figures on what is collected at NASSA and PSMAS are grossly overstated but you support my main argument that we do have the resources locally to revive the economy. We do not need foreign capital only foreign technology and knowhow.

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