Africa’s informal sector and COVID-19: Is this an Opportunity to Revisit the forgotten 80%?
By Dr. Richard Munang
A critical Rethinking of the Hard-Hit informal economy in Africa
Africa’s informal sector accounts for over 80% of all employment in sub-Saharan Africa. This therefore means anything that that hard hits this informal sector needs to be taken with grave consideration. This is a sector that doesn’t understands the language of banks accounts, VAT, and many more but at the end of the day this is the sector that drives the realities of Africa’s economies. These are the unsung heroes and heroines of Africa’s growth and have been so for a long time. Over 90% of new jobs created in Africa during the 90s for instance were in the informal economy. This sector has also been described as the “present and future” of work in Africa.
80% of the employment in sub Saharan Africa is created by the informal sector. Facts! The story of Africa is incomplete if we focus on the formal sector alone because the informal sector is actually the chassis on which our economic locomotion thrives. It employs a large number of people in the rural and urban areas. These people don't understand the big grammar we speak. They don't know what a bank account is. They don't understand what VAT means. All they want are solutions that can add value to their lives so they can put food on the table and more money in more pockets. They are worried about the next meal for their children so they don't go to bed with their stomach aching of hunger. They work round the clock hoping for a better tomorrow. It's really urgent and imperative for each and everyone of us that regardless of which sphere of work we are in that we bring the informal sector at the fore of the work we are doing else we will be leaving out the real people who matter most. Anything less is lip service.
Under COVID-19 however, this informal sector has been hit hard. At local groceries, shortages in critical consumer goods – driven first by panic buying and second, by the slowing down of the global supply chain in replenishing what was consumed – are becoming common feature. Small retailers – the groceries, open-air traders, retail markets that trade under $150 daily, closed as a public health precaution, to arrest spread of the coronavirus. It’s intellectually and reasonably fair to ask some fundamental questions: How will these people, who depend upon daily sales for their sustenance, be able to provide for themselves and their families? For those who deal in perishable food items, how will they buffer the losses of rotting stock that ends up unsold due to reduced clientele as middleclass clients chose to panic buy and remain indoors, and as their stalls are shut down for public health precaution? While some these are difficult, yet somewhat necessary precautionary measures will need to take their course, a third way needs to be created for the informal sector. And that is the “stimulus package” route that lifts millions from the bottom of the pyramid into the economic rungs of society.
Maximizing impact of “stimulus package” approach for Africa under the changing climate
Across the G-20 and indeed globally, countries are framing policy responses to buffer their economies and populations against the repercussions of the COVID-19. The “stimulus package” has arisen as among most formidable policy measures to buffer economies, with some countries offering as high as 20% of GDP as emergency COVID 19 stimulus. The US for instance has announced a package of some $2 trillion. Germany has announced $800 billion. Canada has announced over $50 billion, and the list goes on. Africa has been estimated to need no less than $100 billion. Countries such as Kenya have taken the first step down this worthy road. But even more important for Africa, a continent whose productivity lags competitors in the global economy by up to 20times, is how such emergency measures can be maximized as investments to accelerate the ongoing charge towards unlocking globally competitive climate action enterprises in the continent under the changing climate. For example, Africa’s agro-market is estimated to be worth up to $150 billion each year in 5 years’ time. While it is open to global competition, empowering the local informal sector to take lead in developing competitive local products, that can compete for shelf-space with goods from elsewhere, offers an opportunity for developmental strides in the continent. Enabling this long-term perspective is the trajectory that stimulus packages in Africa should take. Not short-term cash transfers as is the traditional approach currently been used. And for this, the following policy measures can be taken;
First, prioritize buffering informal sector players in the continent’s catalytic sectors. These are economically inclusive sectors – meaning they engage majority of the population. This implies that maximizing their productivity thorough value addition means putting more money in more pockets. In addition, these sectors can meet both climate and socioeconomic priorities simultaneously. For example, decentralizing solar driers among cassava farmers – where cassava is converted into dried cassava chips that can be preserved for longer, sold to millers to be further processed into cassava flour or eaten as is / or fried into cassava chips, has seen incomes increase by 150% and reduce loss by 30%. Use of solar driers to dry rice has proven to be 48times faster than traditional open sun drying and result in better quality, cleaner, more hygienic rice that fetches more in the market. Decentralizing solar driers to farmers in local markets, to enable them to dehydrate and preserve their harvest that remains unsold at end of day and sell when demand peaks is not only cutting postharvest losses but increasing earning up to 30times. All these are delivered by innovatively applying an accessible climate solution – solar dryers – which enhances incomes without piling on the emissions that exacerbate climate change in the first place. Stimulus packages being discussed should aim to buffer these players by targeting the structures that they use to conduct their trade. For example, cooperatives are grounded community financing structures for these players. The stimulus could be targeted at cushioning cooperatives against liquidity crunches hence ensure that delayed payments that may arise out of such a slow-down, do not render them insolvent and close them down.
Second is prioritising human capital. A skilled person, capable of turning challenges, into enterprise opportunities is 4 times the value of produced capital and 15 times the value of natural capital. Over years, Africa has overlooked its most important capital – its people, and prioritised physical resources instead. But it is not a lost cause. To date, among key areas Africa stands out in, is for being the most youthful continent globally. What we must urgently do is invest in skills retooling of these youth. These youth need to be supported to refine, improve and adapt their skills – regardless of disciplinary backgrounds - for application in establishing enterprises in the “catalytic areas of the economy. Stimulus packages should therefore go to create incentives in the form of tax breaks, reliefs, holidays, rebates – to enterprising youth already engaged in these areas, to encourage them and keep them afloat during these turbulent times. Inspiring these youths and ushering them to action through the spirit of Innovative volunteerism is key at this moment. “Innovative Volunteerism is structured guidance & inspiration to youth and young at heart, to trigger them to purpose-driven actions, leverage their skills, talents, interests and ongoing initiatives as the premium to build mutually beneficial & complementary partnerships with the end goal of closing gaps along the agro- value chain by sustainably industrialising it using clean energy. In the process, they benefit by creating climate action enterprises that drive climate action and SDGs as well as solve major developmental problems in the continent.
Third, is more in the long term. Even as we ride through the emergency response period, the continent must invest purposefully towards unlocking credit opportunities in the informal sector. Africa’s informal sector represents an over $300 billion worth credit market. But this remains untapped because formal credit structures, the commercial banks, remain reluctant to invest in measuring credit worthiness of players in the informal economy. Over 95% of their transactions are still in cash. However, modern technologies such as block-chain, with immutability and transparency offer a way out to evaluate transactions in the informal sector. The continent should take lead in formalizing such block-chain technology, by establishing ground rules for block chain governance. For example, being a nascent area, safeguarding local innovators who go into developing solutions in this area through versatile intellectual property protection could be a great starting point.
As COVID-19 rages, let Africa’s response also lay the ground for a new era of maximum productivity in the informal sector. It is in such that Africa can ensure future crises do not bite the millions hard. Always remember the Africa proverb that says there are no short cuts to the top of a palm tree.
Dr. Richard Munang is Africa Climate Change & Development Policy Expert. He tweets as @RichardMunang
Mr. Robert Mgendi is the Adaptation Policy Expert
The views expressed here are those of the authors and do not necessarily represent those of the institution with which they are affiliated
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