ECONOMIC IMPACTS: ZIMBABWE RELATIONS

THE ECONOMIC IMPACT OF THE CLAMPDOWN ON THE INFORMAL ECONOMY, CODE NAMED OPERATION RESTORE ORDER / MURAMBATSVINA
28 JUNE 2005

1. Introduction and Background

At the Zimbabwe Congress of Trade Unions (ZCTU) General Council workshop held at the Cresta Jameson Hotel on the 2nd of March 2005 to discuss the monetary policy review and roadmap for 2005, the Governor of the Reserve Bank intimated that Government was contemplating a massive clampdown on the informal economy, especially to deal with the foreign exchange parallel market. He indicated that were it not for the Parliamentary elections slated for 31 March, the clampdown would have been undertaken immediately. Members of the General Council of ZCTU vehemently opposed such draconian measures, to which the Governor responded sternly that this was the appropriate way of dealing with the underground economy. Dr. Gono stated clearly that after the elections, when nothing else distracted the attention of the police, the purge of the informal economy would be launched. The matter was not resolved, with the Governor issuing his parting words “on this, let‚s agree to disagree.”

The blitz on the informal economy started a day before the Governor of the Reserve Bank announced his Post Election and Drought Mitigating Monetary Policy Statement on 19 May 2005 (18 May 2005). In his monetary policy review, the Governor took a swipe at indiscipline in the economy, foreigners and parallel market dealers and proposed the construction of more jails to lock up underworld dealers. No one was prepared for the sudden, extensive and indiscriminate nature of the clean-up operation. At first, it was the informal traders and structures that were targeted. The exercise covered the whole country, including the rural areas. Almost a month after it started, the exercise moved into business premises, with warnings that private-owned and municipal flats, businesses operating in housing areas will be next in the firing line. Police spokesperson, Wayne Bvudzijena described the operation as the second largest single activity carried out by the police after independence (The Herald, 2 June 2005, page 7). The largest operation was the land redistribution exercise. Non-cooperating local authorities were threatened with being billed by police for services rendered.

The operation was justified by government on the grounds that the informal economy was the hiding place for criminals, people engaging in illegal activities and those who do not practise hygiene, thereby spoiling the image of the towns and country. The Herald of 2 June 2005 reports that here are 25,000 registered informal traders in Harare and 50,000 operating illegally. The Chronicle arguedthat “While flea markets had over the years become popular because of cheaper and unique goods they sell, they had also become a haven for criminals involved in illegal deals.” (7 June 2005, page 1). These elements had to be flashed out to restore order, cleanliness, and hygiene thereby improving the image of the towns and economy. Speaking at a police pass out parade at Morris Depot in Harare on 23 June, the President justified the operation as follows, “I applaud the police for supporting Operation Murambatsvina across the country that targeted illegal structures serving as notorious criminal hideouts and havens for black market activities.” (The Herald, 24 June 2005, page 1). According to the President, people had abused the opening up of economic empowerment opportunities for the historically disadvantaged black majority by engaging in profiteering, illegal deals, externalisation of foreign currency, fraud, corruption, hording of essential commodities and tax evasion. The Commissioner of police, Augustine Chihuri made reference to maggots that must be cleared, while a spokesperson of the capital city made it clear that “Harare has values and brands it was trying to establish as an identity to the outside world and investors.” (The Herald, 23 June 2005, page 1). Addressing an extraordinary session of the Central Committee on 27 May 2005, President Mugabe had made it clear that “Our tourists and visitors first look at our capitals and towns. Capitals, cities and towns are what shape the impressions of a country.” (The Herald, 28 May 2005, page 1).

While the reasons for the operation remain as hazy and unconvincing as ever, it is the manner in which the process was carried out that created mayhem. The Herald of 23 June reported that no less than seven office buildings were closed in the Harare central business district (CBD) on 22 June alone for reasons ranging from breach of licensing regulations, over-crowding and health risks. Some of the affected buildings are well known for housing micro-enterprises such as Ximex Mall, Barts, Winston, Makomva, Daventry, Dublin, Ahmed and Robin houses Œwhere overcrowding and subletting were rife‚ (ibid). The buildings were deemed to be unsuitable for the informal economy activities and the occupants were given hours to vacate them.

The attendant problems are multiple: homelessness, starvation, exposure to cold weather and diseases, loss of assets, wares and stocks, loss of income, wanton arrests, transport woes, rising rentals as a result of increased and urgent demand for accommodation, and abject poverty. In Harare alone, government identified 24 illegal housing co-operatives. On 14 June 2005 alone, police reportedly destroyed at least 500 illegal‚ homesteads at Ngungunyana Housing Cooperative (The Daily Mirror, 15 June 2005, page 3). A Harare resident whose five-roomed house was demolished summarised the plight of many when he observed that “Words fail me. This has been a painful exercise. I feel like all my life has gone down the drain. I just don‚t know where to go from here.” (The Herald, 14 June 2005, page 1)


Dislocations ultimately affected children’s education and access to basic amenities. The Herald of 23 June (page 2) carries a story where police chief spokesperson, Assistant Commissioner Wayne Bvudzijena warns people to exercise caution when demolishing illegal structures at their properties following the death of two children after they were crushed by walls and rubble during the demolition of such structures.

Government stated that displaced people would be relocated to their original homes, while those of foreign origin but Zimbabwean citizens would be resettled on farms. As an afterthought, well into the operation, government indicated that it had drawn up an elaborate plan through the Ministry of Small and Medium Enterprises Development, to relocate Harare informal traders who were conducting business at illegal places and council had identified a number of sites where they would operate from (The Herald, 2 June 2005, page 1). The strategy seeks to regroup informal traders in accordance with their infrastructure needs such as factory shells and common service centres, artisans‚ hives, commercial centres, flea markets, vendor marts-people‚s markets and people‚s shops. The City of Harare proposed to introduce weekend flea markets in all suburbs and designate public car parks at shopping centres for use as flea markets.

In a clear case of putting the cart before the horse, the Ministry of Small and Medium Enterprises indicated that it was in the process of compiling a list of vendors, traders and manufacturers for vetting and allocating working space. The Ministry announced that it had facilitated the establishment of a call desk at the Harare Municipality’s Remembrance Drive offices and throughout the country to answer queries from the affected entrepreneurs, and to register them for relocation. The Ministry of Youth Development and Employment Creation offered use of youth brigades to build stalls for informal traders. Meanwhile, the Minister of Local Government, Public Works and Urban Development stressed that there was no going back on the clean-up exercise. On 1 June 2005, an inter-ministerial conference was held on urban local authorities‚ progress with respect to the clean-up operation where the above suggestions were made. These plans are part of an ex poste rationalisation exercise and appear to be a window dressing exercise. One would wonder why government did not plan ahead before the clampdown and why it did not move people into the alternative structures in a more orderly manner before hand. It does not make any sense to first traumatise people, and then call upon them to re-register for relocation, (The Herald, 2 June 2005, pages 1 & 7). It is akin to a ceasefire between the wolf and sheep.

As the UN special envoy on Human Settlements, Mrs. Anna Kajumulo Tibaijuka, and her delegation were arriving to assess the impact of the operation on 26 June 2005, government announced that the clean up‚ operation was winding up and was being replaced by a new one code named “Operation Garikai/Hlalani Kuhle.” Under this initiative, government seeks to provide residential and business accommodation to deserving people under a comprehensive reconstruction programme. Housing tops the priority list, followed by factory shells and market stalls. The Ministry of Local Government, Public Works and Urban Development, the Ministry of Defence and the Ministry of Small and Medium Enterprises are reportedly spearheading the exercise, with a budget of Z$3 trillion (The Sunday Mail, 26 June 2005, page 1). This reconstruction programme is scheduled to run until 30 August 2005, an unrealistic time frame for a far-reaching programme.

However, as was the case in the past where unbudgeted for expenditures were entertained, this will result in an unsustainable budget deficit and fuel inflation, at a time it has risen from 123.7% in March to 144.4% in May 2005. The recent expansion of government, plans to introduce a Senate, food imports to mitigate drought, exchange rate depreciation, loose monetary and fiscal policies will return the country to hyperinflationary levels and severe macroeconomic instability. This approach will also exacerbate the debt crisis as it relies on the printing of money and accumulating short-term debt.

Apart from the official clean up excuse, other theories emerged to explain the exercise. The more credible one argues that the clean-up is a vindictive exercise, retribution, to punish urban dwellers for supporting the opposition Movement for Democratic Change (MDC) and for voting for it in the March 31 Parliamentary elections. But then why is it that the exercise appears indiscriminate, affecting also ZANU (P.F.) supporters? It would appear that the ZANU (P.F.) supporters, especially war veterans, are also being penalised for not having campaigned for the party following their fall-out with the Presidency over the imposition of the second Vice President Mujuru just before the elections. Otherwise there is no plausible explanation for such a heinous exercise, especially given that the ruling party had encouraged the informal settlements in the first place and had condoned and even blessed them.

In the words of the secretary general of the Zimbabwe Youth Alliance (ZIYA), “The whole issues of illegal structures comes back to ZANU (P.F.). They promoted lawlessness when they let war veterans settle themselves wherever they wanted. They have set up unregistered housing cooperatives and have created illegal settlements, people are just following the precedent set by the ruling party,” (The Daily Mirror, 25 May 2005, (page 2). If the issue is truly about hygiene and cleanliness, therefore government is barking up the wrong tree because it is mainly their policies and actions that have encouraged the informalisation of the economy. The informal economy is simply a reflection of the state of the economy, and hence a symptom of the problem and not the problem itself. If the exercise were targeting criminal elements, a more selective approach would have been appropriate.

In this case, even legally operating vendors and structures were affected. As the Mayor of Bulawayo, Japhet Ndabeni Ncube observed “We were generating a lot of revenue from the vendors. Bulawayo was the most organised city throughout the country in as far as vendors were concerned. We had put up shelters for them and they paid rent and licence fees to us. They were legal vendors operating within the confines of council by-laws.” (The Daily Mirror, 25 June 2005, page 2). In any event, if it is an exercise in the national interest, consultations should have preceded the operation. The Mayor of Bulawayo made it clear that no consultations were held, arguing “I pointed out recently that police should have consulted us and the council could have helped them identify illegal vendors. There was no harm in them (the police) consulting us since we have the mandate through the Urban Councils Act to designate areas where we feel vendors should operate.” (ibid). In the same interview, the Mayor of Bulawayo indicated that the city was now in a dilemma as to how to deal with vendors who had paid rents and licence fees in advance.

2. The Significance of the Informal Economy

In order to project the likely impact of Operation Restore Order‚ on the economy, it is necessary to track the role and significance of the informal economy. The majority of people in this sector‚ are at the very bottom of the economic and social ladder, working under precarious conditions. They typically suffer from a deficit of decent work, with its defining characteristics being that their work is unprotected, excluded,‚ unregistered,‚ or unrepresented.

At independence in 1980, the informal economy was relatively small, accounting for less than 10% of the labour force. This was attributed to the various laws and by-laws that prohibited the free movement of people, especially from the rural to urban areas. At independence, the new government recognised this sector‚ and permitted the free movement of people and was ambivalent in terms of how to deal with informal activities in urban areas. Owing to the failure of the economy to grow at sufficiently high levels and create adequate jobs, the share of informal economy employment grew from less than 10% of the labour force in 1982 to 40% by 1998

Most of the participants in the informal economy were from the formal sector and were unemployed before starting their micro-enterprises. The proprietors used very small start-up capital, which was mainly obtained from formal sector savings from past employment or borrowed from relatives. Loans from savings institutions were largely insignificant. Participants in the urban informal economy worked for more than 8 hours a day for an average of about 6 or more days per week, with more than 80% of participants sourcing the bulk of their inputs from the formal economy.

The number of urban micro and small enterprises (MSEs) grew markedly, especially after 1993. Meanwhile the share of urban MSEs rose from 29% of the total in 1991 to 39% by 1998. A possible explanation for this shift is the high rate of rural-urban migration and the fact that most rural MSEs were started on the basis of remittances from urban areas. With the increased hardships under ESAP, and notably declining real incomes, the urban-rural remittances declined.

As at March 1998, MSEs in manufacturing, commercial and services employed 1.7 million people, 91% of whom were employed on a full-time basis. This represents a 6.5% increase over the 1993 employment level and 22% over that of 1991. Whereas urban MSE employment initially declined by 2% in 1993 relative to 1991, it rose by a whopping 55% in 1998 over the 1993 level and 52% over the 1991 level.

The average years of experience in MSE work amounted to 8.81 years, which compares favourably to 8.7 years in 1991 and 7 years in 1985. Unlike earlier studies which found that the majority of participants had attained primary education, Gemini (1998) found that only 40% had at least some primary education and 47.4% had some secondary education, 0.5% had A‚ level education, 5.3% had college education and 1.1% university education. Since 1993, the size distribution of MSEs changed substantially such that the share of one-person operations declined from 78% of the total in 1993 to 58% by 1998. Both male and female-owned firms shifted towards larger sizes, with the change more pronounced in male-owned firms.

Whereas 72% of all MSEs were in manufacturing in 1991, the importance of that area declined to 65% by 1993 and 42.4% by 1998. The share of trade-related activities more than doubled from 21% of MSEs in 1991 to 45% by 1998, growing at an annual average rate of almost 12%, with most of the increase in retail.
The demise of manufacturing MSEs is attributable to the liberalisation of the trade regime under ESAP, which unleashed a flood of competing imports, especially in the textile and clothing sub-sector. Although home-based MSEs still dominate, their share declined from 81% in 1993 to 69% by 1998.
The majority of MSEs in manufacturing, commercial and services (90%) did not receive any credit from any source during 1993-98. Loans from formal credit sources increased from 0.4% in 1993 to 1.4% in 1998. MSEs that accessed credit had on average larger, faster growing and were more profitable compared to those that did not get any credit. The credit has hardly gone to female-owned MSEs, which accounted for only 10% of total formal credit.

In terms of gender orientation, MSEs underwent a dramatic change during the period 1991-98. Whereas 73% of all MSEs were owned by at least one woman in 1991, the level dropped to 71% in 1993 and 58% by 1998, a decline of 3.1% per annum during the period 1991-98. A marked shift by female owners from manufacturing to trading occurred. Of the MSEs that closed between 1994 and 1998, more than 80% were female-owned. In terms of the constraints being faced by the manufacturing, commercial and service MSEs, Gemini (1998) found marketing, finance and inputs as the main ones, which are similar to those identified in 1993.
Although no comprehensive survey has been carried out since 1998, anecdotal evidence suggests that the informal economy has grown since then as the economic crisis has deepened and unemployment has reached 70%. According to a study by the Central Statistical Office (CSO, 1998), the number of households living in poverty increased from 40.4 per cent on the eve of ESAP in 1990 to 63.3 per cent by the end of the programme in 1995/96. It is currently estimated that no less than 80 per cent of households in Zimbabwe are below the poverty line now. The Poverty Assessment Study Survey (PASS) of the Ministry of Public Service, Labour and Social Welfare (1995) found that 61 per cent of households lived in poverty and 45 per cent in extreme poverty. The incidence of poverty was found to be higher in female, as opposed to male-headed households with levels of poverty of 72 per cent and 58 per cent respectively, an issue generally referred to as the feminisation of poverty.

In such a context, the informal economy has effectively become the economy. Formal sector employment now accounts for 16% of the labour force, the informal economy for at least 40% and the communal sector for at least 44%. According to the Monetary Policy Statement of January 2005 (page 48), the SMEs, Informal and Micro-enterprises sector accounts for an estimated 15-20% of total output (Gross Domestic Product). Most local authorities derive substantial revenues from informal activities.
For instance, Bulawayo City Council was receiving Z$63 million a month (Z$756 million a year) from vendors, which it now risks losing following the current clampdown of the informal economy (Zimbabwe Independent, 10 June 2005, page 4).

3. Civil Society Responses

On the basis of the identified constraints facing the informal economy, the Ministry of Gender, Youth and Employment Creation which was responsible for the informal economy, in 2000 came up with a stakeholder-driven approach to mainstreaming the sector,‚ whose importance was recognised when a Minister was appointed with specific responsibilities for it. Clearly therefore, the current clampdown on the informal economy flies in the face of its recognition by government and the adoption of a strategy to consciously mainstream it through a stakeholder approach. It is necessary to recognise that the informal economy is a symptom of a problem and is not the problem. The problem is the failure of public policy to meet people’s basic needs (food, health, education, shelter, public utilities like electricity, water and sanitation and decent work).
Because of its suddenness and extensiveness, most civil society groups were caught unaware and have largely failed to come up with immediate responses that address the current challenges faced by the informal economy. Most organisations are busy collating information while relief-oriented ones (churches, Christian Care, World Vision etc.) are busy trying to deal with the humanitarian crisis created. Some resistance occurred during the clampdown in places like St. Mary’s and Willowvale Industries, where affected people temporarily resisted and were involved in some skirmishes with police. However, a more concerted stakeholder approach is yet to be undertaken.

The ZCTU, which in 2000 facilitated the formation of an association of informal economy associations, the Zimbabwe Chamber of Informal Economy Associations (ZCIEA), is currently assessing in conjunction with ZCIEA the impact of the clean-up operation. Thus, apart from press releases condemning the operation, the response of civil society remains splintered and cautious. Since government is dealing with the symptoms and not the real issues, the informal economy will rebound. However, it will take more time for the sector to regain its dynamism following the destruction of its asset base. It is easier to destroy than it is to reconstruct.