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The government of Zimbabwe and its citizens have serious concerns regarding the country's joblessness and negative economic growth. The government also is concerned about the mushrooming growth of underground businesses and the resulting loss in tax revenues. Are the solutions to the two problems necessarily in conflict? It is possible that the first goal-employment growth-is much more important than the second-suppressing the underground businesses (that is, the informal economy). Growth of the informal economy is an important part of the future of all developing nations for one primary reason: their present high unemployment rate will crush both local markets and foreign trade.
The informal economy defined
Informal economies have been defined as economic activity not included in a nation's data on gross domestic product, and not subject to formal contracts, licensing, and taxation. These businesses generally rely on indigenous resources, small-scale operations, and unregulated and competitive markets. In addition, skills may be obtained outside the formal educational system.' To simplify the concept, most often the informal economy refers to owner/operator businesses of the urban poor, unskilled or semiskilled workers, and the chronic unemployed. By definition, these workers and entrepreneurs are on the fringe of, if not outside, social and fiscal legality.2
Zimbabwe's reduced tax revenues and increasing budget deficits are accelerating the decay of its infrastructurecritical to maintaining and increasing foreign trade and a high standard of living. Reduced tax revenues are becoming commonplace within many African countries. Southern African nations experience weak economic growth performance and their external viability is undermined by high debts. As a result, these nations face rampant unemployment and deteriorating living standards.3 Only 18 percent of Zimbabwe's 85,237 kilometers of highway are paved. And the communications system, once considered the best in Africa, now suffers from poor maintenance and only supplies 247,000 telephones to a population of 10.9 million. International and fiscal entities are encouraging cash-poor African countries to develop a new tax base in the only economic sector with any dynamism-the informal economy.
Zimbabwe is not the only African nation to confront high rates of unemployment. For example, unemployment rates in Benin are equal to those of Zimbabwe, where a recession in the formal economy has caused the informal economy to flourish in recent years. Informal employment is estimated...