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Informal Sector, next on Zimbabwe taxman radar

By Staff Reporter

David ChimukaDavid Chimuka and his six staff share $70 of monthly profits

When it rains in Zimbabwe work at David Chimuka’s furniture business grinds to a halt.

Unable to afford to rent a building in the eastern city of Mutare, the 43-year-old instead runs his informal operation from an open piece of ground.

Between November and March frequent heavy rain showers interrupt the production of wooden chairs, tables and chests of draws.

Exposed to the elements, Mr Chimuka and his six members of staff struggle to make a living.

I have no capital to buy proper machinery, I’m currently using homemade tools which often breakdown”

Maxwell Teedzai Dorking Home Concept

“Business is very low,” he says. Each month they only make an average $70 (£46) profit, which has to be shared out.

He adds: “People have no money, and we have to make our products as affordable as possible, therefore reducing our profit margins.”

In a country whose economy has been severely damaged over the past 15 years, Mr Chimuka’s story is far from unique.

The World Bank estimated in 2012 that Zimbabwe had 3.5 million such unregistered small firms.

Officially such firms don’t exist and they don’t pay any taxes. The World Bank says they make up 85% of all Zimbabwe’s small firms.

They are typically operations like Mr Chimuka’s, often limping along as the owner simply tries to put food on his or her family’s table.

At the end of last year the Zimbabwean government announced that it wants to formalise the small business sector.

Will these plans work, and what impact could they have?

Farm seizures

Mr Chimuka didn’t always make furniture. Instead as a younger man he was a talented stone sculptor.

Government supporters stopping a vehicle at a white-owned farm in 2000
Government supporters started seizing white-owned farms in 2000

Carving sculptures of animals, birds and people, he made a good living selling his pieces to foreign tourists.

Yet overseas visitors stopped coming to Zimbabwe when the Zanu-PF government of President Robert Mugabe orchestrated a campaign to seize white-owned farms in the early 2000s.

Within a few years the knock-on impact of the land takeovers was that the country had gone from being widely-known as “the bread basket of Africa” to simply being an economic basket case, the situation not helped by continuing overseas sanctions.

Man holding Zimbabwean dollars back in 2008
The Zimbabwean dollar was abandoned back in 2008

By 2008 the country’s official inflation rate was recorded at 231 million percent, and unemployment had soared.

A year later the Zimbabwean dollar was abandoned, to be replaced by a basket of currencies, including the US dollar, South African rand, the Botswana pula and the Chinese yuan.

It was in this unforgiving environment that more and more Zimbabweans started to set up informal businesses, to sell things to get by, and because paid employment was impossible to find.

Weak profits

Back in 2008 Maxwell Teedzai graduated from the School of Journalism at Harare Polytechnic. His dream was to become one of Zimbabwe’s leading journalists, and then ultimately start his own newspaper.

Maxwell Teedzai
Maxwell Teedzai had to give up his plans to become a journalist

But Mr Teedzai’s hopes crumbled when he could not get a journalism job. The media industry in the country had shrunk on the back of a comatose economy.

So instead he became a carpenter, and set up an unofficial business in 2009, based in Toronto, a small farming community north of Mutare.

Now 34, and a father of three, he says: “My carpentry company, Dorking Home Concept, was born out of the need to put food on my table.

Some of Maxwell Teedzai's furniture
Maxwell Teedzai says power cuts often impact on his production

“Our profit margins are still very low, at most $400 during a good month. I have no capital to buy proper machinery, I’m currently using homemade tools which often breakdown.And incessant power cuts are affecting production.”

Like Mr Chimuka, Mr Teedzai’s has a business that makes furniture. His customers are the minority of Zimbabweans who can afford to buy such things, including members of the country’s 250,000-strong civil service, farmers, and mine workers.

Government contracts

The government’s plan to register all small firms in the country was announced last autumn by Sithembiso Nyoni, the Minister for Small and Medium-sized Enterprises.

When contacted for this article, her deputy, Noveti Muponora, said the administration was moving ahead with the plans, but would not elaborate on the exact details of how it will be enforced.

A woman selling fruit and vegetables in the Zimbabwean town of Domboshava
The World Bank estimates that Zimbabwe has 3.5 million unregistered small firms

Despite the uncertainty, both Mr Chimuka and Mr Teedzai say they are keen to get registered, as it would likely boost their trade.

Mr Teedzai says that becoming a formal business will enable him to seek business from government departments and big companies, which only deal with registered small firms.

He also says it would make it easier for him to access bank loans.

One such small firm which is already fully registered is Universal Multimedia, a video and photography business run by Innocent Chiwanza.

Innocent Chiwanza
Innocent Chiwanza says he makes a good living from his video and photography business

Thanks to having all the correct paperwork, he wins contracts with government-run colleges and universities.

The 43-year-old now enjoys monthly profits of at least $1,000.

“I’m now able to live a comfortable life with my family,” he says.

Yet despite the government’s plans to formalise the small business sector, and the apparent enthusiasm from some small business owners, independent economist and MP for the opposition Movement for Democratic Change, Eddie Cross, says the administration will struggle to raise significant amounts of tax revenue.

He describes Zimbabwe’s small business sector as “very largely below the radar screen, and [therefore] very difficult to measure or tax”.

-BBC Africa

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