The Informal Sector in The Aftermath of The Covid-19 Pandemic
It’s conspiracy theory season. The coronavirus pandemic has caused to be unleashed, an avalanche of absurdities — some with astounding vehemence. With widespread lockdowns — some partial and some total — in over 80 countries, many individuals have their hands free. This is why, I suspect, the funny theories of 5G causing Covid-19 or China manufacturing the virus in a lab or Africans getting tested with the yet-undiscovered and unavailable coronavirus vaccine have themselves achieved pandemic status so powerful that laboratories and communications installations are getting destroyed.
We must continue to salute health workers who have their hands full more than at any other prior time and we hope this passes away quickly. But as we deal with the health of the world we must reckon with the state of its economy when the pandemic is declared over.
While Africa has been relatively fortunate — there are now about 10500 cases as I write this, and less than 600 deaths — in the face of the virus, it could suffer economically. Europe and America have already rolled out stimulus programmes for big and small businesses and individuals. There is nothing of the sort in Africa. There are probably less than 1000 big businesses on the continent. The USA, in contrast, has over 14000 businesses employing more than 500 people each — big businesses. With a massive portfolio of informal businesses, Africa has a significant portion of the 2 billion informal workers in the world. We need to consider the future of this legion post-Covid-19. For Nigeria, whose population is about a fifth of the continent, it is even more necessary.
Official statistics have it that there are 21 million unemployed Nigerians -2018 numbers. With crude oil prices plummeting to the 20-dollar territory and possibly staying below 50 dollars for a good part of the year, there is possible doom for the economy. The exchange rate will continue to get pounded and the government’s ability to respond to economic shocks will be hampered by an already hefty debt profile and not-so-impressive current account. We are going to need economic ventilators!
It is small businesses — a synonym for the informal sector in Nigeria — that would be hit the hardest. Adam Minter in a Bloomberg piece writes that ‘home-based informal businesses reported a 40% decline in income’ in Sierra Leone during the 2004 Ebola epidemic. To put that in context, if a household made 30, 000 naira monthly before the crisis, and lost 40% during the crisis, they only made 12, 000 naira per month. Which would leave many bills unpaid and significantly reduce the capacity to respond to family emergencies. It would be enlightening to know how many households have incomes in the 50, 000–100, 000-naira range, probably only one in every ten.
In cases of collapse, restarting would also be impossible because informal businesses have no access to loans. This might create a bottleneck down the road. Rent payment for places of business and homes, utility bills, transportation and feeding costs of millions of Nigerians would be severely impacted.
The American government has set up a 350-billion dollar Paycheck Protection Program for its small businesses which employ 99.7% of the country’s workforce. This will keep the lights on for those businesses. As the companies survive, their employees get a fighting chance, in other words, the economy has a leg-up.
Dearth of official data is a clog in the wheel of progress for Nigeria. While it could be extrapolated from figures like America’s that Nigeria’s small businesses employ as high as 90% of the country’s workforce, they are mostly off-the-books, hence informal. They don’t pay taxes, nor do their employees. Our tax-GDP ratio, circa 6% is appalling and one of the lowest in the world. The country has found it difficult to wean itself off income from commodities and everyone is carrying on as if all is well.
Even if the federal government had similar intentions as the Paycheck Protection Program, it would find it impossible to save most businesses just as it is not making a good impression with its disaster relief template formally referred to as the Social Investment Program (SIP).
Since the onset of the pandemic, I have had eyes out for the positives in the aftermath — a silver lining. I have already concluded that our health sector will not become better after this. It is also not likely that we would begin to take data more seriously or go big on diversification of the economy. Everyone would be hit but the big companies and their employees would emerge from the pandemic with mere financial flesh wounds. However, the titanic informal sector comprising farmers, tailors, hairdressers, barbers, mechanics, and many other artisans would be hard-hit.
A triple-jeopardy is afoot for Nigeria: already down on its luck as per crude oil prices; and an eventual slowdown of its massive informal sector. Lagos, the country’s most dynamic component unit is the epicentre of the virus. The 14-day lockdown would hurt its economy — reputed to be the fifth largest on the continent.
As the bellwether of the nation’s economic health, where most of the consumption and serious non-agricultural production happen, the inevitable lockdown of Lagos and its also-influential neighbour, Ogun, may not hold positive portents for the nation’s teeming poor, the morning after.
Nigerian businesses especially the small ones are not product- or legacy-oriented. They are established for basic sustenance — perhaps why the majority never make it beyond their founders’ lifetime. Sustenance of over 100 million desperately poor Nigerians is already endangered.
The federal, local, and state governments must work out how to institute a fair but robust tax collection mechanism that incorporates and recognises everyone. This era will contribute to easing the dependence on FAAC (Federal Accounts Allocation Committee) allocations, but must also be backed by impressive service delivery in health, education, security, environment — the whole works.
This is not a chicken and egg scenario. Governments must take the lead. Businesses will follow the precepts of good leadership. That is when individuals can set up businesses, register them and pay taxes — effectively telling the government of their existence. Payment of taxes is a quid pro quo arrangement in the social contract between individuals, corporate citizens and the government. I pay my taxes and you make available to me the basic provisions for me to survive and thrive. Until that era comes, it is every man for himself and GOD for us all as we steer the ships of our lives towards normalcy or a new normal.
Finally, the ability of the country’s administrators to keep the country on an even keel by keeping its informal economy running is critical to attaining Goal eight of the United Nations’ Sustainable Development Goals: Decent Work and Economic Growth. The goal entails the promotion of inclusive and sustainable economic growth, employment and decent work for all. Only time will tell if Nigeria or any other country can achieve full employment, but in the meantime, there is an urgent need, now more than ever, to give some level of structure to the informal sector which is the unsung engine room of the economy.
