COVID-19 and Nigeria’s Vulnerable Economy

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By Onyeka Akpaida

It’s been almost a year since Nigeria recorded its first case of COVID-19, and since then, the country has witnessed a barrage of economic as well as societal shocks that have changed life as we know it. In 2018, the World Bank tagged Nigeria as the poverty capital of the world and the COVID-19 pandemic has exacerbated what was already a critical issue. A recent World Bank study revealed that over 7 million people in the country are expected to be tipped into poverty this year and that by 2022 the number of poor people in Nigeria might hit 100 million.

All across the world, the COVID-19 pandemic has rolled back some of the key progress that governments, private players and development actors had made in the pursuit of financial inclusion and improved socioeconomic outcomes as well as the attainment of other development goals. For the average Nigerian, this reality is not theoretical, it is their lived experience. Many families now rely on government palliative care or relief packages from non-profits and social enterprises. It is not far off to attribute some of this decline in standards of living to the latent and lasting economic effects of the first lockdown and restrictions on businesses to members of the informal economy, of which women form a significant number.

This strain on the informal economy is tangible and is not relegated solely to the workforce but has strong effects on the economy itself. Nigeria, like most developing countries, is driven and sustained by a thriving informal economy. The ever-expanding nature of this sector has been fundamentally threatened by the uncertainty of the pandemic. For these millions of workers, even before the pandemic, informality already posed a multi-faceted challenge that restricted access to both private and public sector services. The absence of comprehensive social protection and access to, as well as awareness and uptake of existing financial services has exacerbated an already precarious situation. These socio-economic shocks and the absence of relevant support has led to increasing vulnerability for members of the informal sector, most especially our women including those that have been forcibly displaced. In a sample study organized by the World Bank, Nigeria was one of the four countries including Malawi, Ethiopia and Uganda that saw households record a significant loss in income– with business income being the most susceptible due to the pandemic. Women have it worse, a separate report on Kenya, South Africa and Nigeria by the Centre for Financial Regulation and Inclusion, revealed that more women than men suffered income cuts and loss of livelihood. The extensiveness of the informal economy has meant that business across several sectors– from agriculture to retail– have been impacted.

In December 2020, Nigeria’s Government Enterprise and Empowerment Program (GEEP) and 60 Decibels with the support of the Rockefeller Foundation launched an interim report, detailing the results of a survey “Investigating the Effects of COVID-19” between August and December 2020. The survey was administered amongst 4,940 GEEP clients spread across the six geopolitical zones of the country. It is important to highlight that the GEEP beneficiary survey is ongoing with a target to have completed 11 rounds of surveys and publish a final report by May 2021 that will provide verifiable COVID-19 impact insights from more than 11,000 GEEP clients.

Using the 60 Decibels vulnerability index designed to measure how shocks affect families, the GEEP survey results showed that COVID-19 severely impacted the income levels, poverty levels, financial situation and coping mechanisms of informal workers. The report showed that 9 out of 10 GEEP clients are experiencing drops. 35% reported business closures and 66% reported reduced patronage which further exacerbated their financial situation and pushed them further down the poverty ladder. As a way to adapt and cope with challenges, 84% had to fall back to their savings and 46% reduced the percentage of their income they would have ordinarily set aside for savings.

Many of these workers, most especially women, lack robust savings and other financial safety nets and because of this, income cuts are extremely consequential and impactful. For Mary, a trader, her business selling food items was thriving before the pandemic. She was able to contribute to her family’s income alongside her husband who was a taxi driver. Following the government-mandated lockdown which was crucial in slowing the spread of COVID-19, the family lost two major sources of income and have struggled to pay for their rent or buy foodstuffs. While Mary was fortunate that stalls selling food were allowed to open, she witnessed a significant drop in sales and her husband now sells bread. Both incomes proved insufficient to support their 3 children who were at home due to school closures and the number of meals they ate daily reduced to 1, so did the types of items they consumed.

During the pandemic, many businesses were forced to shut down due to lockdown restrictions. In the US, research gathered by Yelp has shown that up to 60% of businesses which closed down during the lockdown never reopened. This development is attributed to a rupture in income flow leaving many business owners in debt and an already deficient system. Preliminary findings from the December 2020 GEEP report indicates that micro business owners are having to rely heavily on savings and borrowing to reduce the impact of economic shocks. In the long run, these coping mechanisms are not beneficial for business continuity. For many businesses that were able to reopen, the impact of high prices coupled with a weakened economy has led to reduced patronage from customers and subsequently reduced demand. At the same time, for many small businesses in the informal sector, these new financial constraints have led to job losses as many businesses simply cannot afford to keep them on the payroll.

For Habibah, a young widow, who ran a successful petty business selling snacks to school children, the impact of the pandemic coupled with the school closures drove her business to a complete halt. Today, putting food on the table has become extremely difficult as the prices of food have not only increased but her income and business prospects have diminished. Government support and relief programmes intended to alleviate the plight of low-income Nigerians have been beneficial for some and the cash transfer scheme has shown promising results in NIgeria, particularly for women.

Despite being severely impacted, the informal sector is a crucial tool for the country’s economic rebound. Nigeria’s Ministry of Labour and productivity have estimated that approximately 80% of Nigeria’s workforce is employed by the informal sector. With millions of Nigeria’s agile labour force contributing significantly to this sector, there is a sizable tax base that will remain untapped without formalising this segment of the economy. Even as we discuss formalisation, it is important to recognise that formalisation itself is not one single thing or solved simply by registration and identification (although these components are fundamental). Formalisation is an agreement that allows all parties to benefit – the government from an increased tax base, and for members of the informal economy, its legal recognition, social protection, tax incentives potentially, and the type of access enjoyed by the members of Nigeria’s formal economy. Any formalisation project that simply seeks to register and tax without a quid pro quo will have limited success not only because of the hurdles around duplicity, harmonisation, infrastructure and scale- but simply because of the lack of incentive for anyone to change their current status from informal to formal.

In Nigeria and across the continent the sheer force of the informal sector is often overlooked. This is largely due to the fact that on mere observation it might seem like a herculean task, trying to streamline millions of people into a comprehensive database. However, this is a task that must be done if we want to spur development and boost the economic potential of our informal sector. Ensuring economic stability and social protection is fundamental to poverty reduction as it will create the necessary infrastructure to promote formalization, improve the standards of living for millions and consequently have a considerable impact on our nation’s GDP.

… Akpaida is the Founder and Chief Impact Officer, Rendra Foundation.