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Strategies for cushioning African informal economies against COVID-19

by Byron Adonis Mutingwende

By Charles Dhewa

Cushioning informal traders and vendors against the impact of COVID-19 is a very noble idea in developing countries. However, the devil is in the implementation details. For instance, African informal economies function more like ecosystems than a collection of disconnected traders and vendors. That is why before introducing social cash grants, the most important first step is making sense of how these economies work as well as their levels of complexity. Being informal, these economies do not have a solid culture of collecting and processing information. Since informal sector databases are disjointed and rudimentary, policymakers have to be very careful when selecting names of people to be compensated.

Compensating ecosystems not individuals
Instead of picking names of those to be compensated, it is better for governments to consider compensating the informal economy as an ecosystem whose actors have all been affected by COVID-19, though at different scales.  For instance, food traders do not work in isolation but have a network of subsidiary actors who depend on them for employment and these include sales assistants, loaders as well as family members who work in the enterprise. The same applies to vendors.

More importantly, compensating traders and vendors at the exclusion of smallholder farmers who are part of the ecosystem is not a resilient solution. Conducting rapid assessments can generate better evidence for implementing social grants. Names have to be accompanied by the voices of those to be compensated. A lot of background information and contextual issues are invisible in databases and may not be apparent in names or numbers of traders or vendors in particular informal economies.

Turning social grants into a revolving fund
Understanding the informal economy may point to creative avenues like converting social grants into a revolving fund for informal market traders, vendors, smallholder farmers and other actors who are part of the ecosystem. Since they live hand to mouth, giving cash to traders and vendors may not assist in reviving their enterprises but end up meeting consumptive purposes.

While informal food markets have a wide range of traders, the social grant will have a multiplier effect if targeted at traders who buy commodities directly from farmers. These traders have the potential to move commodities without the need for much cash and can extend commodities to vendors on loan with the vendors paying back after collecting cash from consumers.  Every $20 000 given to one of these traders, end up with the farmer. Shocks caused by COVID-19 have affected these traders more because their businesses have been disrupted by being delinked from farmers, some of whom they have financed to produce particular crops.
African smallholder farmers do not have social safety nets
Smallholder farmers do not have social safety which can directly cushion them against shocks induced by COVID-19. In the absence of social safety nets, crops and livestock are their only source of food and income, meeting their day to day needs. While formal shops like supermarkets may be open, if farmers are not able to sell their commodities in the cash-driven informal market, they will not be able to buy commodities from supermarkets. After selling tomatoes or leafy vegetables, farmers should be able to buy sugar and cooking oil.  Unfortunately, supermarkets and wholesalers have seen the closure of African mass markets by authorities to minimize the spread of COVID-19 as an opportunity for profiteering. A major role for African mass food markets has always been keeping prices informal shops in check by providing alternative sources of affordable food.

The majority of smallholder farmers produce crops and livestock to solve problems, not for business purposes. When they sell eggs, vegetables, chickens, zviyo, madhumbe, mbambaira and many other commodities, they do so to pay school fees, solve household consumption and health challenges, most of which will have accumulated over time. The predicament would be lesser if African countries had investment models for rural enterprises. Currently, a cotton or tobacco farmer who earns his/her income from sales has no meaningful investment opportunities in rural areas where s/he lives.

The under-estimated power of food vending in Africa
Food vending remains a major source of income and essential service at the family level for many Africans. Following the continued closure of formal companies, most men no longer have formal employment. This has shifted the burden of keeping the family surviving to their spouses who are into vending. From a gender perspective, vending is more than 90% a women’s domain, mostly widows and single mothers. Given their operations and mobility, trying to get an accurate database of all vendors eligible for COVID-19 social grants has to be a meticulous process in order to avoid leaving out the most vulnerable.

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