Stakeholders deliberate on proposed national formalisation strategy

The Ministry of Public Service, Labour, and Social Welfare; Zimbabwe Economic Society; International Labour Organisation (ILO); the United Nations Development Programme (UNDP) and representatives from informal economy organisations yesterday met in Harare and deliberated on the national formalisation strategy where a number of issues emerged.

It was established that the informal sector constitutes a greater percentage of the labour force and has immense potential for growth.

According to the Labour Force Survey of 2019, 76.5% of workers in Zimbabwe are in the informal economy and they contribute about 48% of the country’s GDP. It estimates that 2.2 million people are employed in the informal economy. Micro, small and medium enterprises (MSMEs) are therefore significant contributors to job creation, development, and poverty alleviation.

Upgrading micro, small and medium enterprises (MSMEs), making them more productive, and registering them as formal businesses, is therefore critical for accelerating economic growth and ensuring that this growth contributes meaningfully towards the national development agenda and Vision 2030.

Addressing delegates at the workshop, Dr. Godfrey Kanyenze, the Director of the Labour and Economic Research Institute of Zimbabwe (LEDRIZ) said key programmes under decent work in the National Development Strategy (NDS1) economic blueprint include formalisation of the informal, rural development, and policy and regulatory framework review.

The plan targets to increase the level of formal employment from 24% in 2020 to 30% by 2025; reduce the precarious unemployment rate from 19% to 14% by 2025; and create at least 760,000 formal jobs over the five-year NDS1 period, which is 152,000 jobs per year.

“Agenda 2030’s Sustainable Development Goal 8 (SDG8) speaks to the need to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.”

“Sustainable Development Goal (SDG) target 8.3 is concerned about the transition to formality, emphasizing the need to “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, including through access to financial services,” Dr. Kanyenze said.

Other relevant policies on formalization include the Devolution and Decentralization Policy; MSME Policy (2020 – 2024) premised on 12 Strategic pillars to support the development and growth of MSMEs; Zimbabwe National Industrial Development Policy; Local Content Strategy (LCS) launched alongside the National Industrial Development Policy, and the Zimbabwe National Employment Policy Framework (ZiNEPF) adopted in 2009 (to be updated).

Annamarie Kiaga, the ILO Informal Economy Specialist said formalization of the informal economy consists of processes of not only reducing decent work deficits in the informal economy, for both workers and economic units but also creating an environment that facilitates the transition from the informal to the formal economy by making it desirable, affordable and profitable.

She said this entails making sure that existing economic units moving towards full formality or becoming fully formal like extending the scope of the laws, registration or increased compliance under commercial acts, with tax, labour and social security authorities.

Under formalisation, existing jobs move towards full formality or becoming fully formal e.g. extending coverage of labour regulation; extending coverage of social security; establishment of a contract to reflect an existing employment relationship; and registration of unregistered employment relations.

“Transitions that result in jobs and economic units being destroyed in the informal economy and created in the formal economy are part of the formalisation process as well as the prevention of informalisation of formal employment,” Kiaga said.

Given the crucial role of MSMEs in the national economy, Cabinet mandated the Ministry of Public Service, Labour, and Social Welfare to develop the National Formalisation Strategy. The ILO, together with other UN agencies, specifically the UNDP, is supporting the Government of Zimbabwe to develop a national formalization strategy. This is after the Government requested the ILO for technical support to formulate a comprehensive National Strategy and Implementation Plan to Facilitate the Transition from Informal to the Formal Economy in Zimbabwe through a consultancy, firm LEDRIZ. The strategy will be closely aligned to the ILO Recommendation 204 on the transition from the informal to the formal economy.

Ms. Vimbai Chiza, a deputy director in the Ministry of Public Service, Labour and Social Welfare clarified issues on formalisation as outlined below:

WHAT IS THE INFORMAL SECTOR?

This refers to all economic activity by workers and economic units that are in law or in practice not covered or insufficiently covered by formal arrangements. The informal economy does not cover illicit activities.’

CHARACTERISTICS OF THE INFORMAL SECTOR

1. Absence of official protection and recognition
2. Non coverage by minimum wage legislation and social security system
3. Predominance of own-account and self-employment work
4. Absence of trade union organization
5. Low income and wages
6. Little job security
7. No fringe benefits from institutional sources
8. Unregulated and competitive markets
9. Ease of entry
10. Reliance on locally available resources
11. Family ownership of enterprises
12. Labour intensive and adapted technology
13. Absence of access to institutional credit or other support and protection.

WHAT IS THE NATIONAL FORMALISATION STRATEGY?

• This a strategy that seeks to facilitate the transition of workers and economic units from the informal to the formal economy, while respecting workers’ fundamental rights and ensuring opportunities for income security, livelihoods and entrepreneurship.
• It also seeks to promote the creation, preservation and sustainability of enterprises and decent jobs in the formal economy and the coherence of macro-economic, employment, social protection and other social policies.
• It also tries to prevent the informalisation of formal economy jobs.

WHY IS FORMALISATION IMPORTANT

• It benefits society as a whole, through better working conditions and decent work opportunities, a more productive workforce, better regulated economic growth, a more level playing field for competitors and a broader tax base (Simplified taxation regime) that contributes towards the provision of public goods such as healthcare and education.
• It provides a substantial contribution to fulfilling the decent work agenda, achieve the sustainable development goals, NDS1 and Vision 2030.
• It provides access to inclusive, affordable, and dedicated financial services, access to viable markets
• Access to conducive infrastructure in the form of sheltered, decent workplaces
• Access to training and development
• Exemption from paying some types of taxes

UPDATE ON FORMALISATION STRATEGY

• An Inception Report has already been developed, which guided the consultation that was undertaken in all provinces. These consultations were also carried out at district levels, encompassing both urban and rural settings. As is now widely acknowledged, national ownership is a necessary condition for the successful implementation of programmes.
• Decentralized consultations are particularly important for Zimbabwe given the context of devolution of governmental powers and responsibilities as articulated in the 2013 Constitution.
• They are also critical in view of the aspirations to leverage broad-based, inclusive growth and development as highlighted in NDS1 and the thrust of Agenda 2030 of ‘leaving-no-one-behind.’
• These stakeholder consultations enabled us to identify the roles and responsibilities of key players and institutions in facilitating transition to formal economy. Various organisations took part and these included include informal economy organizations representatives of relevant government Ministries, social partners, providers of financial and non-financial services and formal enterprises.
• The consultations included a representation of youth, women, and vulnerable groups such as persons with disabilities.
• We also noted there are already in existence interventions towards formalization through the various Government Ministries, agencies, social partners, and external partners that need to be highlighted in order to draw lessons for the comprehensive formalization strategy. In this respect, we are looking at what is working and what could potentially be up-scaled and this will be included in the strategy.
• We have since completed all national consultations and are preparing a draft report.
• After the draft report has been produced we shall have validation workshops before the document is presented to Cabinet. We envisage completing this process by June 2022.
• The Ministry through NSSA is also developing a social security scheme that covers workers in the informal sector.

Questions?

How can authorities alleviate the challenges raised by the stakeholders?

• Promoting formal employment through pro-employment macroeconomic and sectoral policies focusing especially on the development of sustainable MSMEs.
• Reducing informal employment by lowering the cost of transitions to formality through the creation of an enabling policy and regulatory environment that reduces barriers to formalization, while protecting workers’ rights and increasing the benefits of being formal by promoting greater awareness of the advantages and protection that come with formalization (access to markets, productive resources, credit programme, and training and promotional programs to upgrade informal economy units).
• Increasing decent work in the informal economy by developing a national social protection floor for all, implementing a minimum wage and health and safety incentives, organizing workers from the informal economy and encouraging informal enterprises to join together in cooperatives, and supporting the development of social economy enterprises and organizations.
• Policies should be developed that recognize the importance of the informal economy restricting and regulating it when necessary, but mostly seeking to increase productivity and improves working conditions of those who work in it, so as to facilitate transitions to formality.
• Approaches must be anchored in social dialogue based on capacity building and opening up access to the full range of resources, as well as tailoring taxation, financing, and social security systems to specific challenges faced by informal economy actors.
• In the informal economy, working and living conditions are intertwined. Improving working conditions, therefore, means improving the physical and psychosocial conditions and income security of workers, and the interface between their work and their personal, family, and community lives. Issues such as wage regulation, working time, and maternity protection. A priority area is to demonstrate that this is not the case and what can be done.
• The government has a lead responsibility to provide an enabling environment for sustainable formal enterprises and to extend the coverage of social security, particularly to groups in the informal economy who are currently excluded.