Like many countries across the globe, East Africa's governments are providing economic stimulus packages to lighten the economic impact of the COVID-19 pandemic. However, the bulk of these packages will not reach businesses in the valuable informal sector which accounts for over 70% of non-farm employment in sub-Saharan Africa .
With just over 1.3 million cases recorded in Africa by mid-September 2020 and over 29 million worldwide, projections show that East Africa's 2020 GDP projected growth will fall from 5.1% (pre COVID-19) to between 0.2 and 1.2% .
On the business front, there are pandemic winners and losers. Providers of online communications, learning and ordering services are clear winners as the world goes digital. In Uganda, e-commerce platforms like SafeBoda (a taxi hailing and delivery app) have seen a tripling of sales.
Businesses with the ability to use their existing resources to meet new demands are winners too. Large manufacturers like Hela Manufacturing in Kenya switched from making men's underwear to making face masks. Similarly, Rena Beverages, a small-sized beverage manufacturer in Uganda has expanded their offering to include hand sanitizers.
On the other hand, however, stand the pandemic losers. Uganda's Ministry of Finance, Planning and Economic Development projects that the highest losses will be experienced in the tourism, wholesale and retail trade, transportation, manufacturing and agriculture sectors.
Within those sectors, the businesses that rely on the in-person interaction that has been suspended due to various degrees of lock-down across East Africa will lose the most. Traders who cannot meet customer needs through digital orders and direct delivery, barbers, hairdressers, restaurants and cleaning services to mention but a few have been forced to close.
A May 2020 rapid survey by the Uganda Economic Policy Research Institute found that micro and small enterprises in Uganda were the most affected, with the majority expecting to close within three months. In Uganda alone, close to 4 million temporary jobs are expected to disappear.
On the heels of the above, the governments of East Africa recently announced economic stimulus packages.
Uganda's package covers the re-ignition of business activity, stabilization of the financial sector, business tax relief and economic infrastructure expansion.
Re-igniting business activity includes measures around the provision of credit, low interest financing, Public Private Partnership investment funding and loan restructuring. Also included are the payment of government arrears to the private sector and a reduction in mobile banking / mobile money transaction charges.
Given the vehicles through which the economic stimulus packages are being provided, with the exception of those linked to mobile money transactions, Uganda's informal SMEs (which account for 80% of non-farm employment ) are ineligible to participate.
Kenya launched an Eight Point Economic Stimulus Programme that covers infrastructure, education, Small and Medium Enterprises (SMEs), health, agriculture, tourism, the environment and manufacturing. Under SME support, Value-Added Tax refunds will be made and all outstanding government arrears paid. Additionally, an SME credit guarantee scheme will be created.
Given that only registered businesses are involved in the activities covered by the SME component of the package, informal SMEs (which account for 84% of Kenya's non-farm employment) are ineligible to participate.
In Tanzania, the majority of recovery measures target the financial sector. Tanzania lowered bank statutory minimum reserves from 7% to 6%, reduced the Bank of Tanzania discount rate from 7% to 5% and the loan collateral value rate for government securities from 10% to 5% (Treasury Bills) and 40% to 20% (Treasury Bonds). The package also accommodates loan restructuring. All these measures target the formal economy and exclude the informal sector which accounts for over 77% of employment .
Tanzania also minimally increased the daily transaction limit on mobile money transfers by TZ Shilling 2,000 (less than US$1) and the daily mobile money platform balance limit by Tz Shillings 5,000 (less than US$ 2.50). Informal micro and small enterprises could benefit from this. However, the limit increments are incredibly small.
From an informal sector perspective, the situation can be likened to the provision of fuel to a bicycle riding community where nobody owns a vehicle. Rachel, a trader in one of Kampala's shopping arcades, says "I just need cash for rent, masks, sanitizer and stock. I need my customers back."
Her business is ineligible to apply for any of the packages. Additionally, none of them meet her immediate business needs.
One is left questioning the extent to which informal sector representatives were consulted during the stimulus package development process. Clearly, it is imperative that policy makers include voices from the informal sector in all important national conversations.
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Granted, the informal sector is difficult to deal with. It is difficult to identify the players, track and measure their contribution and hold them accountable. However, most informal businesses belongs to some kind of organised group — member-based business associations, cooperatives or community-based groups —which provide structured mechanisms through which to engage the informal sector.
Governments must identify, contact and build relationships with these representative organizations. Government should also strengthen its capacity to engage with these organizations that are at the heart of extensive local networks with relationships policy-makers lack. These organizations are able to mobilize members for the collection or sharing of information and the delivery of services as the need arises.
Without engaging Africa's informal sector - which accounts for the majority of non-farm employment - any effort to build back better after the pandemic will fall flat. The challenge is too big for us to leave so many people behind.
Dorothy Tuma is Chair Emeritus, East African Women in Business Platform and an MSME Strategy Expert
