Covid-19 and the informal economy: A new dawn for Nigerian policy making


Nigeria is one of many African countries to order a lockdown amidst the growing Coronavirus (COVID-19)
pandemic, and like other countries with a vast informal economy, the economic implications have
been dire. Alongside growing tensions and issues of insecurity increasing daily, the practicability and
necessity of the lockdown are gradually being called into question. Undoubtedly, many citizens are in
distress, and though it may be too early to predict the full long-term implications of the mitigation
measures, it is increasingly becoming apparent that the measures employed are not sustainable.
Therefore, a legitimate question that is gaining momentum is whether the health implications of the
COVID-19 crisis significantly outweigh the socio-economic cost of the lockdown?

In the presidential address to the country on April 13, 2020, President Muhammudu Buhari confirmed
what many Nigerians had indeed been expecting and the majority of the population had arguably been
dreading – an extension of the lockdown in an attempt to ‘flatten the curve’. An important deduction
from the speech that may have been overlooked is the reference to the impending policy document to
be formulated. Arguably, the policy document will be the most vital tool in determining how the
country strategically intends to deal with the current crisis. Accordingly, a comprehensive policy
document targeting the informal economy, particularly the small and medium scale enterprises will be
a key tool in detailing not only how the country intends to deal with the current crisis but crucial steps
that will be adopted for the post-COVID-19 economic recovery.

Economic Impact of COVID-19 on Nigeria
The International Monetary Fund projects a recession for sub-Saharan Africa in 2020 with an
estimation that the Gross Domestic Product is expected to contract by 1.6% this year which stands in
stark contrast to the 3.1% growth experienced in 2019. While Mckinsey predicts that the pandemic
could affect a third of the 440 million formal and informal jobs in Africa. These statistics are
attributable to the lockdowns and curfews currently being imposed by various governments across the
continent of which Nigeria is no different. Nigeria in 2016, experienced a recession due to a decline in
oil prices had only recently gained traction on a decent route to economic stabilisation. For countries
such as Nigeria which generate the bulk of its revenue from oil, the extent of the impending economic
stagnation will be almost incomprehensible. The IMF projects that the country’s GDP is expected to
fall 3.4% this year, and has taken steps to provide immediate emergency funds to other African
countries such as Ghana and Senegal who were given $1 billion and 442 million dollars respectively.

The Honourable Minister, Zainab Ahmed disclosed that the Nigerian government was currently
seeking a combined $6.9 billion loan from the IMF, World Bank and African Development Bank to
be able to curb the effects of the crisis. The loans are intended to provide the much-needed fiscal
assistance that will be essential to deal with the current crisis and take steps for an effective post-
COVID-19 economic recovery. Evidently, despite the urgent necessity, it appears that the country is
yet to receive the assistance from the IMF, and it calls into question the issue of policy consistency as
a probable cause for the delay.

Factors that should influence the COVID-19 Policy
The policy response to the COVID-19 crisis in Nigeria will need to take into account not only the
overhaul of the current health care system but the most effective strategies to deal with the most
economically vulnerable of the population. The latter poses a unique set of challenges as the large and
densely populated informal settlements require a very definitive policy response. This customised
policy response will be strategically employed to tackle the current challenges in the Nigeria
economy, which include the large informal sector, the declining fiscal position, increased public debt
and overall low operational capacity. Thus, the issue of policy formulation is one that must be paid
keen attention during and post the COVID-19 crisis. In ensuring that this is done effectively, the
policy must take into account the structural features of the country, which make it unique and
susceptible to higher risk, these include:
– The size of the informal sector;
– The precarious nature of most jobs; and
– The predominance of small and medium-sized enterprises

Firstly, while it is important that the fiscal policy is aimed at increasing the capacity of the health
system to provide adequate and affordable medical attention to individuals affected by the crisis, it is
also important to consider that the majority of the population engaged within the informal sector lack
benefits such as health insurance and paid leave. These individuals need to work daily for survival,
and thus a prolonged lockdown though geared towards the “greater good” might inadvertently result
in significant harm. The implementation of social protection programs to support workers, particularly
those in the informal sector is crucial. For instance, the Central Bank of Nigeria (CBN) fiscal stimulus
package which includes a 50-billion-naira credit facility to households and small-medium enterprises
most affected by the pandemic can be effectively monitored through the use of social capital
mechanisms. This is primarily due to the fact that a significant proportion of individuals in the
informal sector do not have bank accounts or a means of identification, thus, the use of the bank
verification number (BVN) might significantly limit the access of many individuals to the package.

Secondly, as earlier mentioned, the utilisation of social capital is a fundamental policy instrument that
is often not effectively employed. Authorities must realise that the foundations of social capital have a
higher margin for ensuring compliance than merely leaving the responsibility only to the state or the
local governments. Communities, groups, even markets usually have leaders who can assist in
legitimising the intentions of the government amongst the vast majority of their followers. In essence,
informality does not necessarily equate to disorganisation and as such, social capital mediums can be
an effective tool for social stability and ensuring that citizens adhere to the restrictions laid down by
the government. More importantly, they increase transparency and allow for higher levels of
accountability which is essential for effective development.

Thirdly, the policy must think beyond debt relief and re-emphasise the strengthening of regional value
chains. Many African countries have shown remarkable industrial development and ingenuity as a
result of the COVID-19 crisis, and it is imperative that these are harnessed, and leveraged post the
crisis. For instance, countries such as Kenya and Ghana have utilised the textile industry to supply
fabric manufacturers with material to produce face masks. Essentially, the policy approach adopted by
the government must emphasise inclusive growth and the African Development Bank President,
Akinwunmi Adesina put it perfectly when he stated that “Growth must be visible, Growth must be
equitable, Growth must be felt in the lives of people.

Africapitalism to the fore Notably, it appears that the term africapitalism will gain credence now more than ever before as it has become imperative to rethink policy in line with the bulging youth population. Africapitalism, as the name suggests, is the intersection between African values and the core capitalist principles. Rather than being merely just a catchphrase, it is gradually being perceived as an economic policy geared towards the encouragement of a robust private sector-driven economy with a developmental-focused approach. In essence, this economic policy seeks to develop Africa’s private sector to generate both economic prosperity and social value. The main proponent of africapitalism, Tony O. Elumelu, highlights key features which make it an important paradigm shift in development policy. For
instance, the shared purpose nature of africapitalism allows for an emphasis on more inclusive growth
and reduced inequality. Long-term investments, particularly in strategic sectors in key sectors such as
manufacturing, transportation, agriculture and health, will ensure that the country will overtime
develop the right level of competitive advantage. Most importantly, the prioritisation of
entrepreneurship as the key to unlocking the potential of Nigeria will ensure that the youth are
effectively utilised as an engine of economic growth. There must be the growing realisation that the
youth will only be able to contribute to the development process where policies are centred on
guaranteeing that the right jobs are available.

Therefore, a comprehensive policy framework ideally will need to take into account effective means
of ensuring increased job opportunities for the youth. This will be achieved through encouraging a
system that fosters entrepreneurship particularly one that encourages partnerships of like-minded
individuals who are seeking to solve a current problem within their societies or communities. The
policy recommendations though not exhaustive are arguably a step in the right direction towards
creating a sustainable public policy that can be implemented over the long haul. Most importantly,
economic policies must be geared towards ensuring future resilience, economic diversification,

inclusive growth and sustainable development. More than ever before, it is evident that the public and
private sector will need to collaborate to resolve the post-COVID-19 social and economic challenges.