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Zimbabwe’s retail sector faces uncertainty amid growing informal competition – The Zimbabwe Mail

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HARARE,- Zimbabwe’s formal retail and wholesale sector faces an uncertain future as it comes under increasing pressure from an influx of informal traders. This competitive tension is exacerbated by the high costs of doing business in Zimbabwe, including numerous taxes, fees and utility costs.

Formal retailers have expressed concerns about several constraints affecting their profitability, with unfair competition from informal traders being a major concern. These informal traders, often called peddlers, typically operate outside the regulatory framework, avoiding taxes and trading exclusively in US dollars.

The retail sector’s struggles come at a time when consumer purchasing power has been significantly eroded by persistently high inflation and economic instability. The presence of informal traders who disregard laws and offer lower prices has created a difficult environment for formal businesses, prompting many to cut jobs or even close stores.

The director of a leading wholesaler with branches across the country painted a bleak picture of the future of Zimbabwe’s retail and wholesale sector. “The environment is tough for formal operators. Informal traders can avoid certain costs and regulations, which makes it difficult for formal businesses to compete. This leaves the future of formal retailers and wholesalers uncertain,” he said.

The industry’s woes are compounded by the proliferation of counterfeit products and the manipulation of the weights and measures of goods sold on the market. The executive noted: “There’s a reason why regulations exist – to create standardisation, protect consumers and ensure fair competition. If they’re not followed, the sustainability of the market is questionable.”

The challenges have prompted some formal retailers to rethink their strategies. OK Zimbabwe, one of the country’s largest retailers, has implemented a 10-year turnaround plan to address the issues. Despite a 15% increase in volume in the first quarter of 2024, the retail group saw a 10% drop in footfall, underscoring the uphill battle it faces.

Equity research firms have also noted these difficulties, with one stating that “OK Zimbabwe faces significant challenges in returning to profitability and regaining market share.”

The impact of informal trade is felt not only by individual companies but also by government tax revenues. The Zimbabwe Revenue Authority (Zimra) has reported a decline in corporate tax payments, attributing this to the growth of the informal sector, which now controls more than 60% of economic activity in the country. Corporate tax payments as a percentage of total revenues fell from 19% in 2020 to 10% in 2023.

In response to these challenges, Finance Minister Mthuli Ncube introduced new taxes in the 2024 national budget to raise revenue. Meanwhile, the Zimbabwe Retail Confederation (ZRC) has launched a drive to formalise informal traders. CZR President Denford Mutashu has recognised the significant impact of informal traders on formal businesses and emphasised the need for a level playing field.

“We have been working with various authorities including the Treasury, Zimra, banks and the Ministry of Industry and Trade to address the challenges and expectations of informal traders in terms of formalisation and moving towards fiscalisation,” Mutashu said. He emphasised the importance of creating a more appropriate presumptive taxation model for those traders who currently find the fiscalisation process costly and burdensome.

Growing competition from informal traders has led to significant changes in the retail landscape, with some large registered retailers downsizing or closing down. Mutashu stressed the urgent need for policy measures that reflect current market dynamics and ensure fair competition for all players.

Given the turbulent times facing the Zimbabwean retail sector, the emphasis on formalisation and regulatory change will be critical to determining its future profitability and sustainability.

Source: Business Weekly