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With the continued closure of companies and scaling down of formal business due to the general distress and recapitalisation challenges, many people have found themselves out of employment.

According to a Finscope Micro and Small Medium Enterprises (MSMEs) survey carried out in 2012, the informal sector has created 5,7 million jobs in the country. The survey also indicated that there are close to 2,8 million small business owners and 3,5 million small businesses around the country.

However, despite the above impressive statistics, the sector, touted as the future of the local industry, is yet to remit meaningful contributions to the national fiscus. Against this background, Small to Medium Enterprises and Co-operative Development Minister Sithembiso Nyoni has come up with a policy document aimed at ensuring the informal sector positively contributes to the national coffers. Last year, she said her ministry intended to formalise the informal sector which she argued handled about $7,4 billion worth of business.

And among a raft of proposals from the policy document are the plans to register entities in the informal sector and classify them as private limited companies, co-operatives, sole traders or as partnerships.

However, the move has been met with mixed reactions from the SMEs and informal sectors. Acting business editor Oliver Kazunga (OK) caught up with the Bulawayo Vendors and Traders’ Association Co-ordinator Thabang Nare (TN) to get an insight on what the formalisation process of SMEs and the informal sector entails.

OK: What does the formalisation of the informal sector entail?

TN: Formalisation is when SMEs are registered with any local or central government agency and also having workers in the informal sector organised as workers’ associations and — or trade unions. It should be noted however that formalisation should go hand-in-hand with ensuring opportunities for income security, livelihoods and entrepreneurship.

OK: What would SMEs and informal operators have to do to be part of the formalisation process?

TN: They would have to comply with local by-laws and national company registration requirements as applicable. They would have to start keeping accurate books of accounts and file in tax returns.

OK: Are SMEs ready for the formalisation process?

TN: In my opinion less than a quarter of our small enterprises are ready. Formalisation entails proper record keeping, tracking of business cost structures and financial accounting and this is an administrative burden that few of our small to medium enterprises can bear given the difficult trading environment.

OK: What do you think of the progress that has so far been made with regards to the formalisation of informal sector?

TN: I think there is an appreciation of the need to formalise among players in the SME sector. However, we need to incentivise formalisation with access to markets and access to finance.

OK: Following the announcement by the government of the intent to formalise SMEs and the informal sector, some players in the sector have been pessimistic about the move. Why do you think this is so?

TN: I think some SMEs think the government would like to simply reap where it did not sow. The truth is that it takes a lot of personal sacrifice to set up an enterprise and while contributing to the national fiscus is part of the noble cause of business, SMEs think the government should not kill the golden goose of entrepreneurship. Government on its part therefore needs to:

► Simplifying the registration and implement progressive taxation for MSMEs.

► Establishing codes of conduct for the employment of workers in the informal economy.

► Improving labour inspection and new approaches to formalisation.

► Ensuring greater respect for the law, including extending labour protection to unprotected sectors

► Establishing a national board to minimum wages for the informal economy similar to the National Wages and Salaries Board, which sets wages for domestic and unclassified workers

► Promoting education and awareness on issues relating to formalisation

OK: What are the benefits that come as a result of formalisation of the informal sector, particularly to the players within the sector?

TN: Formalisation can lead to economic growth and income strengthening. I think the government through ZimTrade has made significant steps to improve access to markets in the Comesa region through business linkages and market research. Ordinarily, once businesses from Zimbabwe are formalised they can then enter the region and bring export dividends to our nation. This will, however, demand growth in capacity and adherence to high quality standards.

OK: In your opinion, what economic benefits will the country obtain as a result of the formalisation?

TN: There are some areas where Zimbabwe has a competitive advantage and given the dominance of global players like China, we can carve a niche for ourselves in specific industries.

OK: Would you be able as the association’s coordinator to give an example of a country or countries where formalisation of the informal sector has been implemented and the extent to which the process has been successful?

TN: All these three countries were able to reduce unemployment in the informal sector by 14, 0.7 percent and 13.9 percent respectively between 2003- 2013.

OK: What can the government learn from the successes and failures of countries that have gone through formalisation?

TN: Informal workers in Zimbabwe have no platform that allows them to participate in the national dialogue processes. Although the current labour law reform and set-up of the Tripartite Negotiating Forum Bill covers the inclusion of other actors as and when necessary, there is still need to ensure all those working in the informal economy have a voice and a place to air their views at all levels of dialogue. Social dialogue must underpin all policy making on the informal economy. The government has a key role in creating an enabling framework for social dialogue, establishing freedom of association and creating social dialogue platforms at different levels.

In terms of representative voice, the working poor therefore need to be organised into membership-based organisations that can participate in relevant policy-making and rule-setting bodies or processes.

They need legal identity and rights as workers, entrepreneurs and asset-holders. For them to gain official visibility in policy-making, their activities, enterprises and contributions should be measured and valued through provision of appropriate data.

OK: As an association that represents players in the informal sector, what has been your contribution to the formalisation process?

TN: We have facilitated meetings between our members and the regulatory authorities including BCC, Zimra and the Police. We are also engaging the Ministry of Small to Medium Enterprises. We also have done awareness on the Decent Work principles of the International Labour Organisation which are core to the formalisation agenda.

OK: Is the government adequately involving representatives of SMEs and informal operators in the formalisation process?

TN: I think some of the policy engagement has been on a top- down approach. Traditionally workers in the informal sector have been excluded from the collective bargaining process and policy formulation. We hope going into the future growing institutions like ourselves can be invited to be at the table where decisions on policy are made. Formalisation should not be forced but an enabler for those SMEs who would like to grow beyond their survivalist state

OK: Are there any challenges that the chamber has faced in trying to convince your membership about the formalisation?

TN: Many of those involved in the informal economy are unorganised and/or poorly represented in social dialogue mechanisms. There is a lot of turfism in the informal sector and people in one market for example Egodini might think their challenges are unique and don’t appreciate the need to come and work together with people at Renkini. So the lack of unity of purpose means we have limited negotiating power when we engage with local and regulatory authorities. So we need to bring our skills together and chart way forward as SMEs.

OK: As a parting shot, what advice can you give to players in the informal sector about the formalisation process?

TN: Well, if anyone is involved in business one anticipates that their business will grow, so people should not regard formalisation as a negative process but seek to embrace it.

OK: Thank you.

TN: You are welcome.