Synopsis
As consumers in Zimbabwe increasingly favor informal shops for their affordability and convenience, formal retailers and wholesalers are struggling to maintain their customer base. This shift has led to the closure of several established chain stores, highlighting the impact of competition from the informal sector and ongoing economic challenges.Key Takeaways
- Formal retailers in Zimbabwe face declining customer traffic.
- Competition from informal shops drives closures of established stores.
- Operational challenges leave formal retailers with empty shelves.
- Currency distortions favor informal traders over formal retailers.
- Government initiatives aim to increase formalization in the retail sector.
Harare, Feb 3 (NationPress) Formal retailers and wholesalers in Zimbabwe are witnessing a drop in customer footfall as consumers are increasingly opting for informal shops, which provide more affordable and convenient shopping alternatives.
Numerous established chain stores in Harare, the capital city, have recently suspended operations or reduced their scale due to competition from the informal sector, as reported by the Xinhua news agency.
The operational difficulties encountered by formal businesses have led to some outlets being unable to stock products, resulting in almost empty shelves and driving customers toward small informal retailers locally referred to as tuck shops.
The tuck shops are primarily located in downtown Harare and are often bustling with customers purchasing various household grocery items.
The Confederation of Zimbabwe Retailers (CZR), a representative body for retail businesses, has recently confirmed the closure of several formal chain stores due to competition from the informal sector and exchange rate distortions in the country’s multi-currency system.
"The unregulated informal sector provides goods at significantly lower prices, primarily because it operates outside the framework of statutory obligations such as taxes, licensing fees, and labor laws," stated CZR President Denford Mutashu, noting that this situation has made it increasingly challenging for formal businesses to compete effectively.
Moreover, he highlighted that another issue facing the formal sector is the dual use of both the USD and the local Zimbabwe Gold (ZiG) currency as legal tender, which disproportionately impacts formal retailers and wholesalers obligated to trade at the official exchange rate.
The ZiG is currently trading at approximately 26 to one USD at the official exchange rate, while the black market rate is around 38.
In light of the currency discrepancies, informal traders are now conducting business solely in USD, providing them with a competitive advantage over formal retailers.
"Formal businesses are forced to accept the ZiG in a predominantly dollarized supply chain. This issue is compounded by key operational expenses, such as fuel for generators, which must be paid for in USD," remarked Mutashu.
Despite the USD accounting for over 80 percent of transactions in Zimbabwe's highly informalized economy, according to the Zimbabwe National Statistics Agency, the ZiG is primarily accepted in limited formal transactions, including chain stores and settling government bills.
While formal businesses largely operate in the ZiG, suppliers often demand USD.
Last April, the Reserve Bank of Zimbabwe, the central bank, introduced the gold-backed ZiG, replacing the Zimbabwean dollar, which had suffered from rampant inflation.
However, the ZiG has faced volatility, with inflation surging to 10.5 percent in January from 3.7 percent the previous month, prompting many informal traders to reject it.
In November of the previous year, Choppies Zimbabwe, a supermarket chain, announced its exit from the country, attributing this decision to exchange rate regulations that had driven customers toward the informal market.
The expansion of the informal economy has led to a contraction of the tax base, prompting the government to implement measures aimed at increasing formalization.
On Friday, Finance, Economic Development and Investment Promotion Minister Mthuli Ncube announced new requirements for businesses to transact via point-of-sale machines and maintain a bank account linked to the Zimbabwe Revenue Authority, the national tax collection agency, to level the playing field between formal and informal shops.
Additional measures include ensuring compliance from all eligible taxpayers, creating an inter-agency enforcement team to ensure adherence in the informal sector, and discouraging manufacturers from supplying directly to end users and the informal market, according to Ncube.
He also mentioned that local authorities and the central government would work together in licensing and enforcement processes to ensure business compliance while streamlining regulatory procedures and reducing fees and duplication to lower business costs and promote formalization.
