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. repec:idq:ictduk:11257 is not listed on IDEAS
    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. repec:idq:ictduk:13663 is not listed on IDEAS
    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. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. Osuagwu, Eze Simpson & Hsu, Sara & Adesola, Ololade, 2021. "The impact of Microfinance Institutions on the Informal Economy in Nigeria," MPRA Paper 112947, University Library of Munich, Germany.
    10. Ligita Gasparėnienė & Rita Remeikienė & Colin C. Williams, 2022. "Unemployment and the Informal Economy," SpringerBriefs in Economics, Springer, number 978-3-030-96687-4, June.
    11. Piotr Dybka & Bartosz Olesiński & Marek Rozkrut & Andrzej Torój, 2023. "Measuring the model uncertainty of shadow economy estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1069-1106, August.
    12. Esteban-Pretel, Julen & Kitao, Sagiri, 2021. "Labor Market Policies in a Dual Economy," Labour Economics, Elsevier, vol. 68(C).
    13. Makochekanwa, Albert, 2020. "Informal Economy in SSA: Characteristics, size and tax potential," MPRA Paper 98644, University Library of Munich, Germany.
    14. 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.
    15. Sam Njinyah & Simplice A. Asongu, 2022. "The relationship between firms that start operating as unregistered and firms’ innovation: the moderating effect of access to finance," Working Papers 22/099, European Xtramile Centre of African Studies (EXCAS).
    16. Alicia Puyana & José Romero, 2010. "Informalidad y dualismo en la economía mexicana," Serie documentos de trabajo del Centro de Estudios Económicos 2010-04, El Colegio de México, Centro de Estudios Económicos.
    17. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis, 2019. "Shadow Economy: Definitions, terms & theoretical considerations," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 9(5), pages 1-3.
    18. 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.
    19. K K C Sineth Kannangara & Yanrui Wu, 2023. "Shadow Economy in Sri Lanka: A Review and New Estimates," Economics Discussion / Working Papers 23-04, The University of Western Australia, Department of Economics.
    20. Sena Kimm Gnangnon, 2023. "Effect of the Shadow Economy on Tax Reform in Developing Countries," Economies, MDPI, vol. 11(3), pages 1-49, March.

    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.