Impact of COVID-19 on the Informal Sector in Africa: deterioration in Financial Inclusion

By Emmanuel Allottey

Many African countries have been recording high economic growth rates in recent years till the emergence of COVID-19 that has threatened to plunge African economies into the worst recession in decades. During the years of economic growth Financial Inclusion and the alleviation of poverty had been steadily making gains, however the progress made stands to be erased post the COVID-19 pandemic.

According to the International Labour Organisation (ILO) there are 2 billion people working in the informal sector, that’s around 62% of the global workforce. In Africa, a major proportion of the work force are engaged in the informal sector without a fixed and continuous income and limited participation in the formal financial services sector.

Africa is home to an active informal sector consisting of artisans, tradesmen, street hawkers, handy-men, job hands and other, all looking to survive through interaction with society. Those in the informal sector are also less likely to qualify for government programmes introduced to support those affected by COVID-19.

Restrictions on the movement of people and the sudden stoppage or severe downscaling of economic activities to contain the propagation of COVID-19 are having a strong impact on informal workers. The Informal sector operates in the ecosystem aligned to economic activity and the formal sector. Informal workers revenue generation is heavily dependent on human interaction and foot traffic and they operate in a thin margin environment, making them especially vulnerable to the ripple effects of a widespread shutdown.

Access to Financial services has grown significantly due to the rapid adoption of Mobile Financial Services (MFS). Mobile financial services offer a range of financial transactions ranging from payments and current accounts, to savings, loans, investments, and insurance through a mobile device.

The collaboration between Financial Institutions, Mobile Network operators and regulators has created an enabling environment for a burgeoning sustainable financial system. However, even with these partnerships, a significant number of people, especially those in the fold of informal sector employment and entrepreneurship, remain outside the fold of the financial inclusion.

The impact of government-imposed lockdowns and movement restrictions to mitigate the spread of COVID-19 has led to businesses to close temporarily or permanently, leading to job losses and a surge in poverty. These unprecedented interventions have eliminated primary sources of income and supplementary initiatives to generate income for those in the informal sector, making their prospect of prosperity and Financial Inclusion bleak.

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