IDEAS home Printed from https://ideas.repec.org/a/rnd/arjebs/v13y2021i3p53-72.html
   My bibliography  Save this article

An Evil to be Extinguished or a Resource to be harnessed-Informal Sector in Developing Countries: A Case of Zimbabwe

Author

Listed:
  • Favourate Y Sebele-Mpofu
  • Nomazulu Moyo

Abstract

The informal sector remains a permanent feature of all economies. It is a more pronounced component of developing country economies where it is an integral part. Literature on economic development offers diverging viewpoints on the sector’s contribution to economic growth. On the one hand, researchers view the sector with positivity as a resource to be harnessed, capable of growth and innovation and on the other hand with negativity as a pure survivalist strategy and a stumbling block to effective policy formulation and economic development. Therefore as an inconvenience to be extinguished. The ambivalent view is further compounded by the sector’s paltry contribution to national tax revenues and as such, the IS has remained unappreciated and largely on the peripheral of economic reviews and policy responsiveness. The former view suggests that the latter is a misconception and narrow recognition of the sector as merely survivalist and contributing negligibly to employment creation and poverty alleviation efforts. Failure to recognize a coexistence of both street traders and firms with potential for growth, improved productivity and innovation, has consequently resulted in misguided policies. Policymakers pay little or no attention to the potential of informal sector firms, the challenges they face, the vulnerability they are exposed to and the appropriate support they require. This gap motivates this paper, as it seeks to explore the role played by the IS in developing countries with a special focus on Zimbabwe. The study employs a mixed-method research design. The research established that the sector remains unequivocally a major source of employment for many developing countries. It also established that a single-minded focus on formalizing the sector, linked to registration for tax purposes, ignores the other arm to the equation that is the creation of job opportunities, hospitable working conditions, improved productivity and increased profits which are possible with adequate policy support. The research recommends improved policy research and support which is development focused to aid informal firms to grow and be independent institutionally and financially from their owners as well as skills capacitation to improve operational and financial management.

Suggested Citation

  • Favourate Y Sebele-Mpofu & Nomazulu Moyo, 2021. "An Evil to be Extinguished or a Resource to be harnessed-Informal Sector in Developing Countries: A Case of Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 13(3), pages 53-72.
    • Handle: RePEc:rnd:arjebs:v:13:y:2021:i:3:p:53-72
    DOI: 10.22610/jebs.v13i3(J).3154
    as

    Download full text from publisher

    File URL: https://ojs.amhinternational.com/index.php/jebs/article/view/3154/2023
    Download Restriction: no
    File URL: https://ojs.amhinternational.com/index.php/jebs/article/view/3154
    Download Restriction: no
    File URL: https://libkey.io/10.22610/jebs.v13i3(J).3154?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Christian Ebeke & Helene Ehrhart, 2012. "Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies," Journal of African Economies, Centre for the Study of African Economies, vol. 21(1), pages 1-27, January.
    2. Nik Theodore & Derick Blaauw & Catherina Schenck & Abel Valenzuela Jr. & Christie Schoeman & Edwin Meléndez, 2015. "Day labor, informality and vulnerability in South Africa and the United States," International Journal of Manpower, Emerald Group Publishing Limited, vol. 36(6), pages 807-823, September.
    3. Louise Fox & Lemma W. Senbet & Witness Simbanegavi, 2016. "Youth Employment in Sub-Saharan Africa: Challenges, Constraints and Opportunities," Journal of African Economies, Centre for the Study of African Economies, vol. 25(suppl_1), pages 3-15.
    4. Leandro Medina & Mr. Friedrich Schneider, 2018. "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?," IMF Working Papers 2018/017, International Monetary Fund.
    5. Godwin Dube, 2014. "Informal Sector Tax Administration In Zimbabwe," Public Administration & Development, Blackwell Publishing, vol. 34(1), pages 48-62, February.
    6. Joshi, Anuradha & Prichard, Wilson & Heady, Christopher, 2013. "Taxing the Informal Economy: Challenges, Possibilities and Remaining Questions," Working Papers 11257, Institute of Development Studies, International Centre for Tax and Development.
    7. Mazhar, Ummad & Méon, Pierre-Guillaume, 2017. "Taxing the unobservable: The impact of the shadow economy on inflation and taxation," World Development, Elsevier, vol. 90(C), pages 89-103.
    8. Anuradha Joshi & Wilson Prichard & Christopher Heady, 2014. "Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research," Journal of Development Studies, Taylor & Francis Journals, vol. 50(10), pages 1325-1347, November.
    9. Richard Chinomona & Marius Pretorius, 2011. "Major dealers' expert power in distribution channels," South African Journal of Economic and Management Sciences, University of Pretoria, Faculty of Economic and Management Sciences, vol. 14(2), pages 170-187, June.
    10. Amin Y Kamete, 2020. "Neither friend nor enemy: Planning, ambivalence and the invalidation of urban informality in Zimbabwe," Urban Studies, Urban Studies Journal Limited, vol. 57(5), pages 927-943, April.
    11. Bruhn, Miriam & Loeprick, Jan, 2014. "Small business tax policy, informality, and tax evasion -- evidence from Georgia," Policy Research Working Paper Series 7010, The World Bank.
    12. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    13. Deborah Potts, 2008. "The urban informal sector in sub-Saharan Africa: from bad to good (and back again?)," Development Southern Africa, Taylor & Francis Journals, vol. 25(2), pages 151-167.
    14. Nancy Benjamin & Ahmadou Aly Mbaye, 2014. "Informality, Growth, and Development in Africa," WIDER Working Paper Series wp-2014-052, World Institute for Development Economic Research (UNU-WIDER).
    15. Susanna Khavul & Garry D. Bruton & Eric Wood, 2009. "Informal Family Business in Africa," Entrepreneurship Theory and Practice, , vol. 33(6), pages 1219-1238, November.
    16. Makochekanwa, Albert, 2020. "Informal Economy in SSA: Characteristics, size and tax potential," MPRA Paper 98644, University Library of Munich, Germany.
    17. Joshi, Anuradha & Prichard, Wilson & Heady, Christopher, 2014. "Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research," Working Papers 13663, Institute of Development Studies, International Centre for Tax and Development.
    18. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation base in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 625-646, April.
    19. Kate Meagher, 2018. "Taxing Times: Taxation, Divided Societies and the Informal Economy in Northern Nigeria," Journal of Development Studies, Taylor & Francis Journals, vol. 54(1), pages 1-17, January.
    20. Ousman Gajigo & Mary Hallward-Driemeier, 2012. "Working Paper 159 - Why do some Firms abandon Formality for Informality? Evidence from African Countries?," Working Paper Series 437, African Development Bank.
    21. Benjamin, Nancy & Mbaye, Ahmadou Aly, 2014. "Informality, growth, and development in Africa," WIDER Working Paper Series 052, World Institute for Development Economic Research (UNU-WIDER).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Favourate Y. Mpofu, 2022. "Industry 4.0 in Financial Services: Mobile Money Taxes, Revenue Mobilisation, Financial Inclusion, and the Realisation of Sustainable Development Goals (SDGs) in Africa," Sustainability, MDPI, vol. 14(14), pages 1-24, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mpofu Favourate Y Sebele, 2021. "Informal Sector Taxation and Enforcement in African Countries: How plausible and achievable are the motives behind? A Critical Literature Review," Open Economics, De Gruyter, vol. 4(1), pages 72-97, January.
    2. repec:thr:techub:10019:y:2021:i:1:p:607-630 is not listed on IDEAS
    3. Rafaela Bastidas & Nicolás Acosta, 2019. "Misallocation and manufacturing TFP in Ecuador: formal, semi-formal and informal firms," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-29, December.
    4. Favourate Y Mpofu, 2021. "Addressing the Saturation Attainment Controversy: Evidence from the Qualitative Research on Assessing the Feasibility of Informal Sector Taxation in Zimbabwe," Technium Social Sciences Journal, Technium Science, vol. 19(1), pages 607-630, May.
    5. Max Gallien & Vanessa van den Boogaard, 2023. "Formalization and its Discontents: Conceptual Fallacies and Ways Forward," Development and Change, International Institute of Social Studies, vol. 54(3), pages 490-513, May.
    6. Makochekanwa, Albert, 2020. "Informal Economy in SSA: Characteristics, size and tax potential," MPRA Paper 98644, University Library of Munich, Germany.
    7. Jozef Pacolet & Joris Vanormelingen, 2015. "Illicit Financial Flows: concepts and first macro estimates for Belgium and its 18 preferred partner countries," BeFinD Working Papers 0110, University of Namur, Department of Economics.
    8. Pasovic Edin & Efendic Adnan S., 2018. "Informal Economy in Bosnia and Herzegovina – An Empirical Investigation," South East European Journal of Economics and Business, Sciendo, vol. 13(2), pages 112-125, December.
    9. Stephen S. Golub & Janet Ceglowski & Ahmadou Aly Mbaye & Varun Prasad, 2018. "Can Africa compete with China in manufacturing? The role of relative unit labour costs," The World Economy, Wiley Blackwell, vol. 41(6), pages 1508-1528, June.
    10. Pallavi Roy & Mushtaq H. Khan, 2021. "Digitizing Taxation and Premature Formalization in Developing Countries," Development and Change, International Institute of Social Studies, vol. 52(4), pages 855-877, July.
    11. Cyril Chimilila & Vincent Leyaro, 2022. "ICT, e-formalization and tax mobilisation efforts in sub-Saharan Africa," Discussion Papers 2022-03, University of Nottingham, CREDIT.
    12. Becker, Dennis, 2014. "Heterogeneous Firms and Informality: The Effects of Trade Liberalization on Labor Markets," Working Papers 180124, Cornell University, Department of Applied Economics and Management.
    13. Godwin Dube & Daniela Casale, 2019. "Informal sector taxes and equity: Evidence from presumptive taxation in Zimbabwe," Development Policy Review, Overseas Development Institute, vol. 37(1), pages 47-66, January.
    14. Afonso, Oscar & Neves, Pedro Cunha & Pinto, Tiago, 2020. "The non-observed economy and economic growth: A meta-analysis," Economic Systems, Elsevier, vol. 44(1).
    15. Ahmadou Aly Mbaye & Nancy Benjamin & Stephen Golub & Jean-Jacques Ekomie, 2014. "The Urban Informal Sector in Francophone Africa: Large Versus Small Enterprises in Benin, Burkina Faso and Senegal," Working Papers 201405, University of Cape Town, Development Policy Research Unit.
    16. Gnangnon, Sèna Kimm, 2020. "Internet and tax reform in developing countries," Information Economics and Policy, Elsevier, vol. 51(C).
    17. Vanessa van den Boogaard & Rachel Beach, 2023. "Tax and governance in rural areas: The implications of inefficient tax collection," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(7), pages 1892-1912, October.
    18. Colin C. Williams & Kwame Adom & Ioana Alexandra Horodnic, 2020. "Determinants Of The Level Of Informalization Of Enterprises: Some Evidence From Accra, Ghana," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 25(01), pages 1-24, March.
    19. Andrea Floridi & Binyam Afewerk Demena & Natascha Wagner, 2022. "A Game Worth The Candle? Meta-Analysis Of The Effects Of Formalization On Firm Performance," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 27(04), pages 1-27, December.
    20. Hilson, Gavin, 2020. "The ‘Zambia Model’: A blueprint for formalizing artisanal and small-scale mining in sub-Saharan Africa?," Resources Policy, Elsevier, vol. 68(C).
    21. Sam Z. Njinyah & Simplice A. Asongu, 2023. "Unregistered Firms, Financial Access and Innovation," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 32(2), pages 307-346, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rnd:arjebs:v:13:y:2021:i:3:p:53-72. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Muhammad Tayyab (email available below). General contact details of provider: https://ojs.amhinternational.com/index.php/jebs .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.