Report on the Informal Economy in Zimbabwe and its Implications for Sustainable Development Goals

1.0 Executive Summary

A report based on Zimbabwe’s first economic census reveals the pervasive nature of the informal economy. This analysis highlights the significant challenges this poses to the nation’s progress towards key Sustainable Development Goals (SDGs), particularly those concerning economic growth, decent work, and institutional strength. While the informal sector provides essential livelihoods, its lack of integration into the formal tax system undermines national revenue and creates an unsustainable economic model.

2.0 Key Findings: The Zimbabwean Context

2.1 Economic Dominance and Livelihoods

The Zimbabwe National Statistics Agency (ZIMSTAT) confirms that the informal economy has become a primary source of livelihoods for a large portion of the population. This reality directly impacts several SDGs:

• SDG 1 (No Poverty): The informal sector acts as a crucial safety net, providing income-generating opportunities where formal employment is scarce.
• SDG 8 (Decent Work and Economic Growth): The growth in informal employment occurs in response to decades of economic instability and a lack of formal job prospects. However, these roles often lack the security, benefits, and protections that define “decent work.”

2.2 Fiscal Impact and Institutional Challenges

A major finding is the minimal contribution of the informal sector to government revenue due to widespread non-compliance with the tax system. This has direct consequences for:

• SDG 16 (Peace, Justice, and Strong Institutions): The failure to capture tax revenue from a dominant portion of the economy weakens public institutions by limiting their capacity to fund essential services like healthcare, education, and infrastructure.
• SDG 10 (Reduced Inequalities): The tax burden falls disproportionately on the formal sector, creating an uneven playing field. The Confederation of Zimbabwe Industries (CZI) notes this poses a “critical risk,” as formal, regulated businesses are being “squeezed” and find it difficult to remain profitable.

2.3 Sectoral Composition and Industrialization

The census, which surveyed over 204,798 businesses, provides a clear breakdown of economic activity, revealing significant obstacles to industrial development.

1. Wholesale and Retail Trade: 73%
2. Manufacturing: 8%

This structure is misaligned with SDG 9 (Industry, Innovation, and Infrastructure), which calls for building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. The low level of manufacturing activity indicates a critical gap in value-added production within the economy.

3.0 Comparative Regional Analysis

3.1 The Informal Sector in Kenya

Kenya’s situation reflects a similar trend, where the informal sector is the primary engine of job creation. According to a 2024 report from the Kenya National Bureau of Statistics:

• The informal sector employs 83.6% of the workforce.
• It accounted for 90% of all new jobs created outside of small-scale agriculture.

This underscores a regional challenge in aligning job growth with the principles of SDG 8 (Decent Work and Economic Growth).

3.2 Lessons from Nigeria

Data from Nigeria offers a different perspective on the potential for formalization. A report from Moniepoint shows that while 89.4% of Micro, Small, and Medium Enterprises (MSMEs) operate informally, an impressive 89% of these businesses pay some form of tax. This suggests that with appropriate strategies, integrating the informal sector into the national tax base is achievable, presenting a viable pathway toward strengthening institutions as outlined in SDG 16 and fostering public-private collaboration as envisioned in SDG 17 (Partnerships for the Goals).

Analysis of SDGs in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth

  This goal is central to the article, which focuses on the nature of employment and economic activity in Zimbabwe, Kenya, and Nigeria. The text highlights how the informal economy has become a “significant source of livelihoods” due to the “loss of official job prospects.” This directly relates to SDG 8’s aim to promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.

• SDG 17: Partnerships for the Goals

  This goal, specifically its focus on strengthening the means of implementation, is relevant to the article’s discussion on public finance. The article states that the informal sector’s “contribution to government revenue remains minimal due to non-compliance with the formal tax system.” This connects to SDG 17’s targets on enhancing domestic resource mobilization through improved tax collection.

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 8.3 (under SDG 8)

  Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises…

  The article directly addresses this target by describing the pervasiveness of the informal economy and its composition of micro-, small-, and medium-sized enterprises (MSMEs). The entire discussion revolves around the challenges and scale of informal businesses, such as the finding in Nigeria that “89.4% of Micro, Small, and Medium Enterprises (MSMEs) do business informally.” The challenges faced by formal businesses, which are being “squeezed,” further underscore the need for policies that support formalization and balanced growth.

• Target 17.1 (under SDG 17)

  Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.

  This target is clearly identified through the article’s focus on taxation. The Zimbabwe National Statistics Agency is quoted saying the informal sector’s “contribution to government revenue remains minimal due to non-compliance with the formal tax system.” The article contrasts this with the situation in Nigeria, where “89% of these informal enterprises allegedly pay some type of tax,” suggesting that improving domestic tax collection from this sector is a key issue and possibility.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicators for Target 8.3

  The article provides several quantitative indicators that align with measuring the size of the informal economy, which is a key aspect of Target 8.3 (related to official indicator 8.3.1: Proportion of informal employment in non-agriculture employment).

  1. Proportion of the economy that is informal: “Informal sector dominates 76% of the economy” in Zimbabwe.
  2. Proportion of the workforce in the informal sector: In Kenya, “the informal sector employs 83.6% of the workforce.”
  3. Proportion of MSMEs that are informal: In Nigeria, “89.4% of Micro, Small, and Medium Enterprises (MSMEs) do business informally.”
  4. Sectoral contribution to the informal economy: In Zimbabwe, “wholesale and retail trade accounts for 73% of the informal economy’s activity. Manufacturing trailed behind at 8%.”

• Indicators for Target 17.1

  The article provides indicators related to tax compliance within the informal sector, which can be used to measure progress towards strengthening domestic revenue collection.

  1. Qualitative assessment of tax contribution: For Zimbabwe, the informal sector’s contribution to government revenue is described as “minimal due to non-compliance.”
  2. Proportion of informal businesses paying taxes: For Nigeria, a specific figure is given: “89% of these informal enterprises allegedly pay some type of tax.” This serves as a direct indicator of tax compliance within the informal sector.

4. Table of SDGs, Targets, and Indicators

Source: africa.businessinsider.com