Formal retailers and wholesalers in Zimbabwe are facing a decline in customer traffic as shoppers increasingly turn to informal businesses, which offer more affordable and accessible options.
Several prominent chain stores in Harare, the nation’s capital, have recently closed or reduced their operations due to the growing competition from the informal market.
The challenges faced by formal businesses have also led to some stores running out of stock, leaving shelves empty and further encouraging customers to shop at small informal outlets, known locally as tuck shops.
These tuck shops, often located in central areas of Harare, are popular among shoppers for purchasing various household goods.
The Confederation of Zimbabwe Retailers (CZR), which represents the retail sector, has confirmed the closure of certain formal chain stores, citing competition from the informal sector and the country’s multi-currency system as key factors.
“The informal sector, which operates without complying with regulatory requirements such as taxes and licensing fees, is able to offer goods at much lower prices, putting pressure on formal businesses,” said CZR President Denford Mutashu.
Another significant challenge for formal businesses is the use of both the U.S. dollar and the local Zimbabwe Gold (ZiG) currency as legal tender. While formal retailers are required to use the official exchange rate, informal traders conduct transactions in U.S. dollars, giving them an edge in the market.
The ZiG is trading at around 26 to 1 U.S. dollar at the official rate, while the black market rate is much higher, at around 38 to 1 U.S. dollar.
Mutashu noted that formal businesses must accept ZiG in a largely dollarized economy, where key operational costs such as fuel are paid in U.S. dollars, further complicating the situation.
Although more than 80% of transactions in Zimbabwe are conducted in U.S. dollars, according to the Zimbabwe National Statistics Agency, the ZiG is primarily used in formal transactions, including those at chain stores and for government bill payments.
The Reserve Bank of Zimbabwe introduced the ZiG last April to replace the Zimbabwean dollar, which had been severely impacted by inflation. However, the ZiG has faced volatility, with inflation rising to 10.5% in January from 3.7% in the previous month, leading many informal traders to reject it.
In November of the previous year, supermarket chain Choppies Zimbabwe announced its exit from the country, citing the unfavorable exchange rate regulations that had shifted consumer behavior toward the informal market.
The rise of the informal economy has contributed to a shrinking tax base, prompting the government to take steps to encourage formalization. Finance Minister Mthuli Ncube recently announced that businesses would now be required to use point-of-sale machines and maintain bank accounts linked to the Zimbabwe Revenue Authority (ZIMRA) to ensure tax compliance.
Other measures include increasing enforcement to ensure compliance in the informal sector and discouraging manufacturers from supplying directly to informal traders. Local authorities and the central government will work together to streamline regulatory processes, reduce fees, and encourage formal businesses to operate more efficiently.
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