Since the year 2000 Zimbabwe's economy has been characterised by rapid de-industrialisation due to the shutting down and downsizing of various local manufacturing companies.
The jobs that were lost in local manufacturing were offset (partially replaced) by growth in agricultural jobs, mostly arising from black Zimbabweans who were resettled on former white-owned commercial farms upon the commencement of the land reform programme which began in the year 2 000. The informal sector has resultantly displaced the formal sector.
The International Labour Organisation (ILO) estimates that as much as 80% of the country’s working population, is now working in the informal sector. This was conveyed in its 2021 report on the need for creating decent (high income) jobs in Zimbabwe. In that ILO report, the total informal sector headcount was reported to be made up of 5.2 million workers.
This number (5.2 million) includes subsistence farmers and others working in informal retail (such as vendors), informal industries (such as backyard manufacturers of ploughs and carts) and services (hair dressers, mechanics, etc). With 80% of the country’s workforce working in the informal sector, that concurrently means that only 20% are employed in the formal sector.
Such figures should be worrying because the informal sector is understood to offer low quality jobs and poorly (small) wages. Most workers in the (informal) sector are therefore extremely poor. These workers generally face tough working conditions such as working for up to 12 hours in a day and cannot even contribute a portion of their earnings to a pension scheme, so that they will have a guaranteed income, when they grow old. The informal sector is also less productive (produces lower value goods) than the formal sector. This means that, the dominance of the informal sector also indicates poor overall economic activity.
The other disadvantage of having a larger informal sector is that, the government cannot be able to earn huge tax revenues from the sector, due to its low productivity and the tax evasion culture of those who work and do business in the sector. In South Africa, for example, the South African government collects as much as 40% of its total tax revenues from personal income tax, which is levied on people working in the country’s formal sector. Revenue from personal income tax is much more than tax on company revenues (corporate income tax) in the country (South Africa).
Whereas, in Zimbabwe, the Zimbabwe Revenue Authority's (ZIMRA) 2022 annual report reveals that both personal income and corporate taxes, made up only 34% of the government's total tax revenues. If it could be possible to increase the size of the domestic formal sector by 4 times (so that 80% of the working population begins to work in the formal sector) that would likely result in a four-fold increase in government revenue flows from personal and corporate taxes. Thus, the country needs to strive to have conditions which encourage the establishment and survival of formal businesses.
Due to the high levels of informalisation in the Zimbabwean economy and low productivity, the Zimbabwe Statistics Agency (ZIMSTAT) outlined that, almost half (42%) of the Zimbabwean population was living in extreme poverty, in 2022. This means that, a significant portion of the population cannot afford adequate food, basic healthcare, dignified housing and education. In a 2019 report, the International Labour Organisation also stated that 65% of informal sector employees earn less than US$100 per month and are thus subject to a form of poverty called "working poverty".
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With 5.2 million workers in the informal sector (if subsistence farmers are included) the 65% implies that 3.4 million workers in the informal sector are living in poverty. What is of greater concern however, is that, if the working able-bodied adults (the employed) are struggling, then the disabled, women and children, can be expected to be bearing the worst effects of such a situation (extreme poverty).
The need for more social grants
Based on the disheartening picture described above, the government needs to understand that turning around the current economic structure will be a greatly challenging task. There are a number of crucial changes which are needed in order for the prevailing social and economic situation to be changed. Most importantly, there is an urgent need to grow the levels of formality in the economy, so that the benefits of a thriving formal sector are enjoyed by all.
Secondly, there is a pressing demand to create more decent (high income) jobs in the informal sector. In that regard, the country will need to create around 5 million high-quality jobs within the next 10 years, so that citizens can live dignified lives, free from extreme poverty. The number (5 million) is derived from the 3.4 million poor workers in the informal sector, and the over 1 million unemployed citizens who are neither in the formal nor informal sectors.
Creating that many high-quality jobs (5 million) will not be achieved by any random policy. Rather, a few well-thought-out strategies (policies) will be crucial to turn things around. In this regard, the government may need to consider providing millions of citizens with social grants (free monthly cash transfers to citizens). It is possible for the Ministry of Finance to provide social grants intermittently (for 1- 3 year periods) with suspension of such programs when the economy is not growing vibrantly enough (since that also means the Ministry would be getting less revenue collections).
These social grants can then be expected to spur economic activity so that the economy grows. The economic growth can then lead to the new high-quality jobs which are needed within the economy.
Types of social grants which the Ministry may choose to offer the citizens may include; child support grants paid to poor (low-income) mothers, unemployment benefits for the unemployed who are actively seeking work but cannot find it, or an extra income for all people who earn a monthly salary of below US$150.
If the government distributes monthly social grants (cash transfers) to all people of working age who are poor, it could end up making monthly payments to about 5 million Zimbabweans. These figures are derived from data provided in the various reports of the International Labour Organisation.
By paying cash transfers of US$10 per individual, to the 5 million citizens, the gross (direct) cost of such a programme would be US$50 million per month or US$600 million per year. Assuming administrative costs of US$5 million per month (or US$60 million per year), the eventual total cost of such a social grant programme would be US$660 million per year. Such a program can be implemented for 1-3 years, as the government monitors its effects on the economy.
Economic experts are also likely to support it, since within any economy, the majority (usually 60%) of economic activity arises from personal consumption expenditure.
Therefore, by enabling the poor to have more access to cash, there would be more customers at retail shops whilst local farmers, manufacturers and the services sector would also participate in the thriving domestic economic activity. It is likely that the US$600 million in cash transfers can end up stimulating as much as US$2 billion of economic activity, as suppliers increase their capacity to meet the growing demand within the economy.
However, it will be essential, to ensure that local products are dominantly available, so that the increase in local demand does not end up supporting foreign companies through a huge growth in imported products.
In order to ensure that the cash transfers are provided only to the poor, a “means-test” would be made, to ascertain that the rich are not beneficiaries of the social grant program. The “means-test” would check whether applicants for the social grant have a house of a high value which is registered in their name at the Deeds Registry Office or whether they are registered for income tax as an active recipient of a salary, among other things.
The government can also opt to provide a universal (blanket) pension payment to all senior citizens (over 65 years) who are poor.
This option would ensure that anyone over 65 years of age, who is neither formally employed nor has a house of significant value, nor is married to a rich person, can get regular monthly cash payments from the government. Such an option would be crucial, especially in the next few years, since the huge informal sector in the country will result in a greater number of older people in urban areas, who are without a regular income, than before. The pension payments may be worth a modest US$30 each month, for example. Once more, this will not only cushion the pensioners from poverty but it will also stimulate domestic economic activity by increasing the level of demand for goods and services within the economy.
Cash payments can also be made to women of low income levels who have children under the age of 10 years, or even under 18 years, if the government's resources permit. If put to good use, the women would use those funds to ensure that their children have a balanced diet and basic medications, if they ever fall ill.
A balanced diet would assist in limiting the number of stunted children in the country.
A reduced frequency of stunting also means that these children will develop into adults with sufficient capabilities to live wholesome lives. They will not have thinking disabilities or physical deformities.
Conclusion
With more people working in the informal sector and a huge prevalence of poverty in the country, it is essential for the government to intervene so that the poor are protected from the worst effects of lack (poverty).
If the government chooses to provide them with monthly cash payments, that would help them (the poor) greatly. That would also increase domestic economic activity.
Moreover, social grants are known to assist in improving the health of the recipients since they can use the funds to visit healthcare facilities when they are ill, or to consume a healthy diet which builds strong immune systems or to stay up-to-date with the latest and most important information on disease prevention through the use of cell phones and the internet.
Therefore, the government needs to consider the use of social grants as an effective option to alleviate the worst effects of poverty, diseases and also as a means of stimulating economic growth. The Treasury can choose from the following types of social grants- child support, unemployment benefits, universal pension payments, poor adults benefits, etc. Such interventions will also be necessary because the country is far behind the desired levels of high-quality jobs which the economy needs, for the citizens to live dignified lives.
Creating millions of high-quality jobs in the next decade might prove challenging, if it were to be left to the natural workings of an economy. Additionally, emerging upheavals such as automation, Artificial Intelligence, and unreliable global economic activity, also mean that there are greater risks that the Zimbabwean economy may not create as many quality jobs as necessary for most of its citizens, especially within the medium-term (1-5 years). As a result, it is essential that the government intervenes in order to avert the worst that could happen, through measures such as the increased provision of social grants.
- Tutani is a political economy analyst. — [email protected].
