WHILST the recent government policy intervention on the mandatory use of the Point of Sales machines (P.O.S machines) by the informal business sector has been met with some widespread criticism by many as a policy that should not be forced and or shoved down the throats of informal businesses, let us focus on the positives for a moment.
The recent policy shift and focus on the informal sector marks the genesis of the upscaling and formalisation of informal businesses in Zimbabwe whilst there is some fine-tuning that needs to be done.
This also means the integration of informal businesses into formal banking.
The recent move by the government effectively forces informal businesses to formalise their transactions and pay taxes using digital payment systems.
The Reserve Bank of Zimbabwe and government have directed local authorities not to issue operating licenses, which are mandatory for every business operator, to operators not using POS machines.
To operate a POS machine, a business must have a bank account.
All bank accounts are linked to ZIMRA (the tax revenue collecting authority), effectively this means that all informal business operations will now be liable to pay tax.
It also means businesses without POS machines would now be deemed illegal.
As a management consultant firm, we have always been ardent advocates and proponents of up-scaling and formalisation of informal to formal businesses.
We have always believed that up-scaling one’s business from informal to formal offers numerous advantages, and it’s the natural progression for a business operation to take. Many informal businesses we have helped to formalise and upscale have continued to enjoy numerous benefits and advantages that come with the move. In this particular instalment, we will seek to enumerate the advantages and benefits of upscaling and formalising of informal businesses.
Contribution to Economic growth
Let us first take a microscopic analytical glimpse of the informal sector’s contribution to Zimbabwe’s national economic growth. The impact of the informal sector on economic growth cannot and will never be downplayed. It has been a key driver of economic activity and employment creation. According to available data and statistics, the informal sector contributed a significant portion of the GDP, with estimates placing it around 64% of the total economic growth as of the 2024 economic year.
It is likely to continue playing a major role towards economic growth going forward. However, it must hastily be mentioned that its contribution towards economic growth has been difficult to measure and quantify with a reasonable degree of exactitude and certainty due to its nature.
Advantages of upscaling and formalisation
There are always various and numerous advantages that come with upscaling and formalisation of informal businesses. These include:
Increased access to credit and working capital: Once a business has formalised and exhibits order and organisation, keeping all the necessary managements accounts, records, and historical patterns and trends of its operations, it becomes much easier to attract and access working capital and credit facilities. Credit and working capital .This would help the business in terms of research, expansion, and growth.
Greater Market Opportunities: A formal more organised business with access to credit and working capital has unlimited access to a bigger market share and market opportunities which is availed as part of its quest to reach out to other markets previously not serviced.
Improved Business credibility: A formalised business with identifiable business premises, partners, and stakeholders becomes more credible. All business key stakeholders would always prefer dealing with businesses of repute.
Legal protection: A formal business will always work with a legal firm as its partners where the business either pays a retainer or has a kind of arrangement that ensures that they are always covered in case of unexpected litigation.
Ability to participate in government contracts: Government is one of the biggest equal opportunity providers for most businesses. For a business to stand a better chance of participation in government contracts it needs to be formalised as it is always mandatory for such businesses to have bank accounts, tax clearance certificates, and a good track record when it comes to statutory payments and or remittances.
Better tax Management: Most formal businesses have access to computerized invoicing system including the use of fiscalized machinery that helps with better tax management making sure that the business makes adequate and timeous tax payments, averting situations of late tax payments and or non-compliance.
Potential Access to government incentives: There are always immense benefits that come with professional observance and strict adherence to government statutory regulations. The government normally offers various incentives that incentivise and motivates businesses that are compliant. Tax rebates is a good example of governments incentives.
The immense benefits that come with up-scaling and formalisation of business should always seek to make organisations operate and function effectively and efficiently in the discharge of their core business. There have been arguments that as businesses formalise and begin to grow and expand they face a myriad of inefficiencies like bureaucracies, red tape and other challenges listed below.
It has been noted that other formalised businesses sometimes tend to lose agility, lose focus, become saddled with a lot of distractions, adaptability becomes a challenge, bottle-necked and choked with slow moving bureaucratic teams in a fluid and dynamic fast paced changing business environment. Formalisation of business should retain agility and quick decision-making as well as adaptability that is normally associated with small informal businesses.
In conclusion the benefits and advantages of a formalised business far outweigh the advantages of an informal business. Business management of formalized businesses should continually adapt and embrace agility and frowns upon unnecessary bureaucratic bottlenecks that tend to suffocate smooth, effective and efficient busines operations.
Shephard Kembo, managing partner Globavel international
