Willingness To Formalize: A Case Study Of The Informal Micro And Small-Scale Enterprises In Zimbabwe

The rapidly growing informal micro and small-scale enterprise sector in Zimbabwe is an issue of concern because the government is still struggling to revive the economy from the effects of economic meltdown. Of main concern is the lost revenue through tax evasion. The growing informal sector is believed to be a result of the poor quality of certain institutions, high corruption levels in the country and lack of incentives to formalize. The objective of this study was to analyze the impact of growth constraints on the willingness to formalize by informal MSEs. Twenty internal and external growth inhibiting factors were analyzed using Principal Component Analysis (PCA) and a logistic model was estimated on a dichotomous variable of willing/not willing to formalize. The results show that willingness/unwillingness to formalize by informal entrepreneurs in Zimbabwe is significantly related to institutional imperfections and asymmetry of bureaucracy associated with the registration process, lack of access to technology, market and financial constraints and lack of entrepreneurial and management skills. Improving the bureaucracy of the registration process and access to technology may possibly increase the odds of the informal operators formalizing their businesses. However, improvement in market and financial constraints and entrepreneurial and managerial skills will decrease the odds of willingness to formalize.