Building a Business Environment that Encourages Formalisation of Informal Businesses in Zimbabwe

This chapter aimed to develop a framework for developing a business environment for formalisation of the informal sector in Zimbabwe. Using a small survey in the capital of Harare, which employed a mixed-methods approach, combining quantitative and qualitative data from a sample size of 106 informal Micro, Small and Medium Enterprises (MSMEs) (100) and key informants (6) based in Harare. The study revealed the key challenges for the surveyed informal enterprises are insufficient access to finance or credit for operations, lack of access to adequate markets and insufficient skills. The probability of paying taxes in the future stops small businesses from registering because they are too small. The results show the underlying challenges to the administration of tax to MSMEs. Despite the introduction of presumptive taxes, tax compliance by MSMEs remains low, mainly due to low revenue by the MSMEs, lack of information on how the tax system works and unwillingness to comply with tax laws. Access to financial support systems is the highest-ranked enabling factor for formalisation, followed by a favourable regulatory framework, technology infrastructure, access to markets, human capital development and physical infrastructure. The most required form of government support is to make the registration process free, make MSMEs aware of accessible business supporting systems, make company registration less time-consuming, offer incentives for formalisation, explain the benefits of formalisation, make information on formalisation easily accessible and enable the MSMEs to participate in policymaking. Guided by these results and reviewed literature, the study proposed a framework for formalisation of the informal MSMEs in Zimbabwe.