The World Bank has said that measures such as lockdowns used to curb the spread of the coronavirus pandemic by many advanced countries may not work in Africa, hence, the need for governments to design a model that will suit their systems.
Some African countries including Ghana have resorted to a lockdown of the economy – either full or partial— a model that is working effectively for advanced countries due to the structure of their economies. However, that same strategy seems to have backfired in African countries that have implemented it as a majority of the workforce are found in the informal sector and their survival is on a daily basis.
It is against this background that the World Bank is cautioning against such copy-cat models that may bring untold hardships on people and businesses on the continent. For the bank, it is necessary for Africa to consider its economic framework before introducing measures rather than copy the exact models of advanced countries.
“As African governments deploy a series of emergency measures, structural features of African economies should shape the policy responses that are designed and implemented to fend-off COVID-19. There are multiple reasons why economic policies implemented in Sub-Saharan Africa should be different from those adopted in advanced countries and some middle-income countries.
First, informal employment is the main source of employment in Sub-Saharan Africa, accounting for 89.2 percent of all employment. Excluding agriculture, informal employment accounts for 76.8 percent of total employment respectively. Based on the number of entrepreneurs (own-account workers and employers) who are owners of informal economic units, the vast majority of economic units in the region are informal (92.4 percent).
Informal workers lack benefits such as health insurance, unemployment insurance, and paid leave. Most informal workers, particularly the self-employed, need to work every day to earn their living and pay for their basic household necessities. A prolonged lockdown will put at risk the subsistence of their households.
Additionally, 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,” the World Bank said in its Africa’s Pulse report (April 2020).
Another measure that the advanced world took was to cut policy rates. The U.S for example, cut its rate to near zero. Ghana also followed suit and slashed its policy rate by 150 basis points to 14.5 percent. However, such a measure, the World Bank says, won’t reap the intended results in African economies for two reasons.
First, it says, is the prevalence of supply effects at the height of the containment measures, i.e. reduced labor supply and closed businesses, especially in contact-intensive sectors, and secondly, the weak monetary transmission in countries with underdeveloped domestic financial markets.
This, the bank says, raises the need for a different type of central bank intervention, one that provides liquidity support through direct credit lines or guaranteed commercial loans to formal and informal businesses that can continue producing in the future.
As part of its recommendations, the World Bank says Africa should develop what it calls a ‘two-pronged strategy’ of saving lives and protecting livelihoods. This, it says, involves designing effective strategies that include short-term relief measures and medium-term recovery or stimulus measures.
It adds that this strategy requires that African policymakers 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 further recommends that fiscal policies need to be geared in the short term to provide income support to the workers who are most affected by the pandemic. It advises that the continent should rather learn from countries that have enacted or adapted social protection and job programmes to combat COVID-19.