The Nature of Informal Trade Sector in Zambia and Its Implications for Government's SMEs Regulatory Framework

The Nature of Informal Trade Sector in Zambia and Its Implications for Government's SMEs Regulatory Framework

Mavhungu Abel Mafukata (University of the Free State, South Africa) and Grace Kancheya (University of the Free State, South Africa)
DOI: 10.4018/978-1-4666-7288-8.ch009
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Abstract

Zambia's efforts to create a viable SME sector – after the successes of SMEs in Southeastern Europe faces numerous constraints. The nature of the informal trade sector in Zambia and how the same would provide implacable complexities for the envisaged policy framework has not been determined. This chapter explores the nature of the informal trade sector in Zambia and the implications of its nature on the new policy framework. This chapter based its argument on a case study conducted in Makululu Compound in Kabwe amongst small-scale informal traders (n=99). The majority of informal traders operated individually-based, unregistered, non-tax compliant activities to create self-employment and generate household income. The larger majority of the traders were unwilling to move from informal trading to the envisaged SMEs. Policymakers should not abruptly replace informal trading with SMEs as envisaged. Instead, informal trading should be allowed to co-exist with the envisaged SMEs.
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Theoretical And Methodological Approaches

Theoretical Considerations

This chapter is based on the assumptions made by Sarr (1995) “As the end of the economic and financial crisis in Africa is not yet in sight and is not likely to be achieved for some years to come, - the informal sector has potential for independent development even for making it the nexus of industrialization”. This assertion is supported by Tshuma and Jari (2013) and Palmer (2004) who argued that informal trade would develop into the driving force of economic development, increased production, job creation, poverty alleviation and increased Gross Domestic Product (GDP) of emerging economies sooner than later.

Furthermore, this chapter draws its theory from Mafukata et al. (2014) who argued that microfinance-sponsored resource-poor beneficiaries were capable of establishing flourishing informal trading enterprises to provide employment and household income for a living – especially for those who fail to find economic space and participation in the formal economy. The informal business practices increase the share of informal traders in wage employment (Peprah, 2012; Palmer, 2004).

This chapter also borrows from one Praveen Kumar's advice “give adequate focus on informal trade” to reduce poverty in Zambia (Chanda, 2014). This paper hypothesizes therefore that “the informal economy is “here to stay” and would expand with modern industrial growth” (Ndhlovu, 2011) as evidence is already there of such expansion (Palmer, 2004). The expansions might be encouraged by the non-guarantee on the one hand of the SMEs for economic growth (Gomez, 2008).

This chapter argues that the nature of the informal trading in Zambia is largely unknown at policy level and therefore greatly misunderstood for policy and development debates in particular. In Zambia, it is clear that the informal trade sector is viewed as comprising entities while grassroots evidence points to mostly individuals who trade as hawkers, street vendors and many other home-based small-scale retailing practices among others. This paper is envisaged to make contribution for Zambia's informal trade sector-SME new policy and the debate thereof by removing falls assumptions, misconceptions and flawed conclusions on the current state and the future of informal trading in Zambia.

Key Terms in this Chapter

Small and Medium Enterprises (SMEs): These are legally registered businesses for the purpose of recognition as businesses and tax compliance rather than individuals irrespective of size, number of employees and turn-over who have proven physical locations of trading.

Cross-Border Informal Traders: Individuals or household members who trade across the political borders operating non-registered and non-tax paying business activities whose practices are based on street vending or hawking but not limited to selling or providing small quantities of goods and services to an undefined market to earn a living.

Informal Workers: These are own account individuals who provide work or service in a non-regulated environment which usually involves mere agreement between the worker and the one receiving the service.

Informal Trading: Unorganized small-scale, self-employment creating activities which might involve individuals or unremunerated relatives of the business owner, small number of hired workers or totally without any hired workers which the resource-poor engage in for the purpose of increasing household income generation opportunities.

Informal Traders: The non-registered, non-accounting and non-tax paying grassroots-based individuals or group of household members whose business practices are based on street vending or hawking but not limited to selling or providing small quantities of goods and services to an undefined market to earn a living.

Enterprise: Organized business entity providing goods or services to a willing client.

Tax Compliant: Tax-paying individuals and entities to tax authorities of a country in accordance to the business laws of the respective country.

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