Lockdown Could Jeopardise African Economies, World Bank Warns
POLITICS DIGEST – As African governments deploy series of emergency measures to fend off the novel coronavirus, structural features of their economies should shape the policy responses that are designed and implemented, said the World Bank in a recent report, warning that a copy-and-paste of western responses may not serve the continent well.
Lockdown, restriction of movement except for providers of essential services, a measure Nigeria has adopted for some of its main states, could lead to an increase in poverty and endanger lives and livelihoods due to the collapse in economic activity and macroeconomic instability, the World Bank warned.
“A prolonged lockdown will put at risk the subsistence of their households,” said the Bretton Woods Institution. “The majority of workers hired are in a precarious situation, and most of these jobs are temporary and with low remuneration, do not offer social security, and put workers at a greater risk of injury and ill health.”
World Bank’s warning which came less than a week to the extension of Nigeria’s lockdown by President Muhammadu Buhari on Monday, noted that challenges African economies face stem from their large informal sector which accounts for 89.2 percent of all employment.
Also, concerns are that small and medium-sized enterprises (SMEs), an important driver of growth in economies across the region, account for up to 90 percent of all businesses and represent 38 percent of the region’s GDP could be affected while the third fear is that interest rate cuts in several African countries in line with monetary policy actions around the world will be ineffective.
Since March 30, Lagos, Nigeria’s commercial capital, Ogun State, a growing industrial centre, and Abuja, the federal capital, have been on lockdown to curb the spread of the COVID-19.
According to a recent report by Enhancing Financial Innovation & Access (EFInA), a financial sector development organisation that promotes financial inclusion in Nigeria, COVID-19 could affect the livelihood of 50 percent of the 99.6 million Nigerian adult population who earn their income on a daily or weekly basis.
Data from EFInA show that 32 percent of Nigeria’s adult population earn their income daily, 17.5 percent weekly, 18.5 percent income monthly, 5.5 percent earn annually, 18.5 percent earn income occasionally or upon completion of job, and 8 percent earn no income.
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For Lagos, around 60 percent of the adult population are vulnerable while 63 percent and 40 percent of adults in Ogun and Abuja, respectively, are at risk.
In Nigeria, the informal sector accounts for 65 percent of Nigeria’s economy, according to the International Monetary Fund (IMF).
Participants in these sectors in Nigeria’s main cities have been asked to stay at home, yet relief materials provided by the federal and sub-national governments have left much to be desired.
According to BusinessDay findings, contrary to the state government’s promise that an economic stimulus package comprising bags of rice, beans, garri (cassava flakes), bread, dry pepper, potable water, and vitamins would be distributed to each household, single units were instead distributed per multiple households and in some cases, a whole street.
Similarly, the impact of direct cash transfers by the Federal Government has been limited due to low coverage, posing a challenge for policymakers.
In an article published by Quartz Africa, W. Gyude Moore, a visiting fellow, Centre for Global Development, argued that curfews, not lockdowns, would be appropriate for the continent with large informal economies.
Citing the example of South Africa, Moore said access to public spaces can be reconfigured without a total lockdown.
He also suggested enlisting local community leaders to ensure compliance with movement restrictions, mandatory mask-wearing, continued improvement in testing and direct payment and cash transfers to curb the spread of the disease.
This is in line with World Bank’s advice for a two-pronged strategy of saving lives and protecting livelihoods.
“In this context, policymakers in the region need to design effective strategies that include (short-term) relief measures and (medium-term) recovery/stimulus measures,” the World Bank said.
The global lender said the reduced effectiveness of (traditional) monetary stimulus implies that this two-pronged strategy to combat the COVID-19 pandemic would have to rest on the shoulders of fiscal policymakers, which means African policymakers should aim at strengthening health systems, providing income support to (formal and informal) workers, providing liquidity support to viable (formal and informal) businesses and guaranteeing the provision of public and government services.
The World Bank also said financing relief and recovery measures would require assistance from multilateral organisations and bilateral official creditors in a region that is already facing public debt vulnerabilities.
“Finally, African policymakers need to think ahead about the exit strategy from COVID-19. Once the containment and mitigating measures are lifted, economic policies should be geared toward building future resilience,” the global bank said.
