Nelson Gahadza Business Reporter THE World Bank has urged Zimbabwe to focus on raising productivity in the informal economy rather than simply pushing businesses towards formalisation, warning that registration drives…
Nelson Gahadza
Business Reporter
THE World Bank has urged Zimbabwe to focus on raising productivity in the informal economy rather than simply pushing businesses towards formalisation, warning that registration drives alone are unlikely to deliver meaningful economic transformation.
The call is contained in the Zimbabwe Growth and Jobs Report, released this week, which highlights the dominant role of the informal economy in Zimbabwe’s labour market and broader economy.
According to the report, four out of five jobs in Zimbabwe are informal, while the informal economy accounts for an estimated two-thirds of gross domestic product (GDP).
Although the informal sector provides better earning opportunities than subsistence agriculture—with non-agricultural informal earnings averaging 55 percent above rural agricultural incomes—productivity remains significantly lower than in the formal sector.
“Policies targeting the informal sector should primarily focus on raising productivity and not just formalisation,” the World Bank said, citing evidence from formalisation programmes implemented globally.
The Bank said registration initiatives had generally produced limited improvements in firm performance unless they were accompanied by measures addressing other constraints faced by businesses, particularly access to finance and capacity-building programmes.
The report also recognises the informal economy as an important stepping stone where firms and workers accumulate capital, skills and market relationships.
Instead of seeking to eliminate informality outright, the World Bank recommends promoting upward mobility within it by strengthening market linkages, improving security of land tenure and expanding access to finance.
Such measures, it said, would allow more productive informal businesses to grow, with some eventually transitioning into the formal economy.
The productivity challenge is particularly significant given the limited size of Zimbabwe’s formal private sector, which employs only around 11 percent of the working population but offers wages that are 56 percent higher than those of informal sector workers.
Labour productivity in informal firms is also only a fraction of that recorded in the formal sector.
At the same time, the report found that competition from informal businesses has reduced formal firm productivity by approximately 24 percent on average, highlighting the broader economic consequences of the productivity divide.
The World Bank has proposed a three-pillar reform agenda centred on investing in foundational infrastructure, creating a business-enabling regulatory environment and mobilising private investment.
Tax reform forms a key part of the agenda, with the Bank recommending the replacement of the presumptive tax regime with a simplified tiered system, alongside streamlined licensing and permitting processes.
It also recommends greater data interoperability among registration agencies to reduce the administrative burden facing businesses.
“These three SME tax reform components are mutually reinforcing,” the report states. “By removing enough friction at once, formalisation becomes the rational choice.”
The recommendations come as the Government is pursuing several initiatives aimed at strengthening the capacity and competitiveness of micro, small and medium enterprises (MSMEs).
One of the emerging initiatives is the proposed Zimbabwe Entrepreneurship Exchange (ZEEX), an alternative SME trading platform to be operated by the Zimbabwe Stock Exchange.
The platform is intended to provide SMEs with a dedicated avenue to raise capital, with the Government and regulators working on simplified listing requirements suited to smaller businesses.
ZEEX is expected to broaden access to finance while supporting innovation, entrepreneurship and inclusive economic growth.
The Government is also increasing support through the Small and Medium Enterprises Development Corporation (SMEDCO), which has been allocated ZiG152.3 million under the 2026 National Budget to support access to affordable and longer-term financing.
In addition, it is also investing in physical infrastructure for small businesses, including the development of MSME workspaces, factory shells, industrial hubs, vendor marts and roadside markets.
The 2026 Budget targets at least one new MSME workspace in each of the country’s 10 provinces over the medium term.
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