Social distancing unlikely to hold up in Africa without a safety net for microentrepreneurs

A food vendor, popularly known as a "Mama Put", arranges her sets of pots and plates on a table in Abuja, Nigeria, January 25, 2020. Picture taken January 25, 2020. REUTERS/Afolabi Sotunde

African countries have joined the rest of the world in imposing severe restrictions on human mobility in a bid to contain the COVID-19 pandemic. With the rapid rise of infection rates—which approached 1.3 million globally and 8,000 in Africa as of this writing—social distancing and other public health measures are crucial for reducing further contagion. The immediate focus of policymakers on improving the capacity of health care systems to test, isolate, and treat patients has been appropriate considering the millions of lives at risk.

At the same time though, social distancing restrictions have disrupted the livelihoods of tens of millions, exposing vast populations to an acute financial shock. Many countries, such as Nigeria and Cameroon, have introduced strict lockdown measures that closed business without sufficient mitigation measures to assist the affected individuals and households. For the poor without the luxury of bank savings or a resort to credit cards, public health measures that cut their lifeline of daily income could appear to offer a cure that is as bad as the sickness. Such measures, then, will also be highly ineffective, as people are more likely to disobey the law rather than stay at home and go hungry. Given these devastating potential consequences, it is ethically questionable to bar people from working without offering a means to support their basic needs.

Thankfully, Africa’s agrarian households—which make up more than half of the total population—will be comparatively insulated from potential food shortages as they produce most of their own consumption needs. A disadvantage in normal times due to its low productivity, subsistence farming offers the benefit of self-reliance, shielding farmers from the immediate costs of trade restrictions induced by COVID-19. Likewise, paid urban workers, most of whom work for the government or state enterprises, will face limited financial crises unless the provision of food supplies becomes severely strained or inflation skyrockets.

The first to feel the brunt of stay-at-home restrictions will be informal business owners and daily wage workers in the urban centers of Africa. Self-employing and family-owned small enterprises in sectors such as retail trade, sewing, handiwork manufacturing, and taxi/motorcycle ride services, make up more than two-thirds of urban employment in Africa. Tens of millions of Africans and their dependents rely on income from these businesses and will be unlikely to endure a lockdown for more than a few days.

Without robust government support, microentrepreneurs are unlikely to abide by the stay-at-home measures, creating risk for themselves and their communities. In addition, since microenterprises use cash for businesses exchanges and deal with several customers daily, their return to business will undercut ongoing efforts to contain COVID-19. In some cases, violations of these stay-at-home orders—caused by hunger and desperation—might lead to confrontations with the police, as happened in Lagos recently.

While microentrepreneurs are known for their resilience, they are also highly vulnerable to the economic shocks induced by COVID-19. Because they are so often unregistered and unorganized, they are unlikely to get immediate government support in the form of financial compensation or tax benefits. Even in normal times, these businesses fly under the radar of government programs for policy support, which puts them at a disadvantage relative to medium-sized or large businesses. African countries also have a history of cracking down on informal businesses during times of crisis. At the same time, most microentrepreneurs come from disadvantaged social segments, including women and ethnic and religious minorities. Their powerlessness and fragmentation perhaps explain why they have received so little attention in the current debate on the economic costs of COVID-19.

The ability to sustain social distancing, thus, crucially hinges on the presence of policies that help these businesses and individuals cope with the costs of the lockdown. Unlike in the West, where the focus is on a broad economic stimulus, the immediate focus in Africa is on disaster relief. Where there have been economy-focused policies, unfortunately, many of the responses have been generally lacking in detail and ambition. The sizes of the financial packages are also generally minuscule. In Ethiopia, the planned aid package is just 0.15 percent of GDP, while Rwanda’s relatively robust package amounts to 1.5 percent of GDP. (By contrast, the size of the U.S. stimulus package is equivalent to 10 percent of GDP.) In oil-producing countries such as Nigeria, Angola and Gabon, governments’ ability to introduce a sufficient relief package is constrained by large budget deficits caused by the unprecedented oil price crash. International funders are also preoccupied with the urgent issue of supporting health systems and have not yet started to address the humanitarian costs of economic lockdown.

African governments need to rapidly put together or further bolster social safety net programs that target informal businesses and other vulnerable economic groups such as day-wage laborers. Wherever possible, they should facilitate (micro) credit and tax exemptions to increase the ability of micro-entrepreneurs to fulfill their financial obligations. Unfortunately, since so many of these firms are informal, most are not in government registries, and so the status of their activities is unknown, limiting the feasibility of specific, targeted interventions like these.

Instead, policymakers should introduce policy measures that will have a beneficial effect for microentrepreneurs and the urban poor at large. Examples of helpful programs include subsidies for (or direct distribution of) key commodities such as food (bread or other staples), energy (fuel and electricity), and a reduction in fees for key services like phone, internet, and banking. Imposing moratoria on real estate or rental income taxes can also have beneficial effects for many of these small-scale enterprises that occupy rented spaces. For individuals and families in dire financial conditions or facing health emergencies, policymakers should consider measures such as free provision of health insurance or direct financial transfers. Given the large number of affected people, however, African governments will be unable to make direct financial transfers for a sustained period of lockdown without the aid of international development financing.

Governments can also take this crisis as an opportunity to bring greater organization to the informal economy. The crisis offers a unique chance to start systematic efforts to digitize, register, and organize microentrepreneurs, and to avail essential services to help them thrive. One example is promoting the opening of standard or mobile-based bank accounts, which will reduce the logistical challenge of making rescue fund transfers at the last mile. In a positive development, Ethiopia has just recently passed a law opening up its mobile banking sector to nonfinancial firms in response to the COVID-19 outbreak. Similar initiatives that strengthen the capacity of microbusinesses can improve their preparedness to cope with potential future crises of a similar nature.

Without effective support for informal businesses and the urban poor, it is only a matter of time before social distancing restrictions created to combat COVID-19 will start to crumble. For these public health measures to hold up, African governments need to act quickly to devise emergency social safety net programs that offer a lifeline to those severely affected by the economic lockdown.