OCTOBER, 2020 ISSUE 1, NO. 3 AFRICA KNOWLEDGE IN TIME POLICY BRIEF OFFICE OF THE CHIEF ECONOMIST, AFRICA REGION, WORLD BANK A Tale of Africa Today: balancing the lives and livelihoods of informal workers during the COVID-19 pandemic BY PIERRE NGUIMKEU AND CEDRIC OKOU measures directly jeopardize their income, their live- Summary lihoods, and their lives. In Sub-Saharan Africa (SSA), more than 80 percent of workers find their livelihoods in the informal sector. The analysis confirms that higher rates of informal em- They are artisans and shop owners, fishers and divers, ployment (as a fraction of total employment) are associ- tailors and weavers, truck drivers and market sellers, ated with higher rates of COVID-19 infection or disease among many other informal jobs. spread. Not surprisingly, countries with relatively larger populations are also more likely to experience higher In the era of the COVID-19 pandemic, saving lives rates of infection. and protecting livelihoods are both deeply challeng- ing in SSA countries with high informality and almost Given the adverse socioeconomic effects of COVID-19 no social protection. Informal workers and their fami- containment on informal businesses and workers lack- lies are most vulnerable to the disease, as they toil in ing social protection, countries should take proactive crowded bazaars and busy streets. Moreover, infor- steps to curb the spread of infections, treat affected peo- mal workers are typically poor and cannot stockpile ple, and at the same time provide social safety nets and food or cash for a long lockdown. Strict containment economic relief for informal workers and businesses. THE COVID-19 PANDEMIC IN SUB-SAHARAN AFRICA (SSA) GLOBAL SHOCK IS PROJECTED TO CONTRACT ECONOMIC ACTIVITY BY 2.8% IN 2020 UP FROM 2.2% IN 2019 THE PANDEMIC COULD PUSH BETWEEN 40 TO 60 MILLION PEOPLE INTO EXTREME POVERTY 27 MILLION OF THEM IN SUB-SAHARAN AFRICA Acknowledgement: Note prepared by Pierre Nguimkeu, Associate Professor in the Department of Economics at Georgia State University and Cedric Okou, Economist, World Bank. Objective and disclaimer: Africa Knowledge in Time Policy Briefs synthesize existing research and data on important questions and issues around the socioeconomic dimesions of Covid-19. Africa Knowledge in Time Policy Briefs carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclu- sions are entirely those of the authors. They do not necessarily represent the views of the World Bank Group, its Executive Directors, or the governments they represent. Photo: Henitsoa Rafalia / World Bank ments, a high level of informality will likely increase the Introduction risk of COVID-19 infection (Loayza and Pennings 2020). The COVID-19 pandemic, combined with lockdowns and other containment efforts, has struck a brutal blow The evidence suggests that higher rates of informality to the global economy. In Sub-Saharan Africa (SSA), are associated with higher vulnerability to COVID-19, this global shock is projected to contract economic even when we compare countries with other similar activity by 2.8 percent in 2020, amid high uncertainty, features such as population, income level, and health up from 2.2 percent in 2019 (World Bank 2020a). This spending. Specifically, we find evidence that one per- pandemic could push between 40 to 60 million people centage point increase in the share of informal employ- into extreme poverty, 27 million of them in Sub-Saharan ment between countries is associated, on average, with Africa, thus wiping out the hard-won progress of the a 4 percent increase in the number of COVID-19 cases. last decade. The COVID-19 crisis is first and foremost a This underscores the urgent need for robust heath, fis- health crisis. However, the spread of the disease in SSA cal, and monetary policies that countries should pro- will also be shaped by economic and labor conditions, actively take to: a) curb the spread of the infections; b) especially within the informal sector that accounts for treat affected people; and c) provide social safety nets more than 80 percent of the workforce (ILO 2018). and economic relief. This analysis explores how the living and working con- ditions of informal sector participants make them the How are Informal workers affected by most vulnerable to disease outbreaks. The COVID-19 COVID-19? shock and its adverse economic effects have triggered Channels of socioeconomic impacts. The COVID-19 a cascade of job losses and bankruptcies. This pan- pandemic and containment measures undertaken to demic has emptied payrolls and sparked widespread curb its spread can have negative impacts on the so- pay cuts, furloughs, and layoffs, with businesses and cioeconomic welfare of workers, by triggering job and workers in hospitality, service, tourism, and transpor- income losses. The adverse impacts on socioeconom- tation sectors particularly hard-hit (World Bank 2020a). ic welfare occur through supply and demand. On the This can push even more of the labor force into the supply side, the COVID-19 shock can contract labor informal sector. supply owing to increased morbidity and mortality. Widespread sickness and fatalities deplete the labor Two-thirds of the urban population live in packed hous- force and restrict the ability of workers to operate in ing with communal sanitation and water scarcity. They close contact. Moreover, containment efforts such as shop in crowded markets and congested streets and lockdowns, workplace shutdowns, and border closures have little or no access to heath systems or social safe- have disrupted and damaged supply chains. Elevated ty nets (Nguimkeu and Okou 2019, World Bank 2020b). downside risks have also led to a tightening of credit Because it is challenging, and at times impossible, for in- conditions that has forced many small businesses to formal workers to comply with social distancing require- close temporarily or permanently. 2 A Tale of Africa Today: balancing the lives and livelihoods of informal workers during the COVID-19 pandemic On the demand side, heightened COVID-induced un- certainty and unemployment can raise financing costs and hold back business investment. Households also reduce their spending on goods and services and in- crease their precautionary savings, which weigh on consumer demand. Thus, informal workers face a sharp drop in income as buyers become scarce, and are ex- posed to income and health risks, with little capacity to mitigate them. They are also particularly vulnerable to these pernicious effects because their income is un- stable, they often lack skills for alternative livelihoods, and informal work typically lacks any social protection (Amin and Okou 2020). Containment measures disproportionately affect in- formal sector workers. The first cases of COVID-19 were reported in SSA countries between late February Photo: Ousmane Traore/The World Bank and early March of 2020. By the third week of August 2020, the continent had more than 1,148,849 confirmed ly a freeze on external debt service payments (World cases and 26,664 deaths due to the virus (Africa CDC). Bank 2020a,b). To address this health crisis, countries have implement- ed unprecedented containment measures, including Exacerbating effects of informality. Pervasive infor- travel bans, restrictions on public gatherings, closures mality often reflects a range of push and pull factors of workplaces, schools and bars. Most containment in society. These include poor living conditions, limit- measures were intended to be brief but strict, with ed financial and medical resources, high reliance on curfews enforced by police and soldiers (Dyer 2020). remittances and the absence of social safety nets, all Yet the containment restrictions have disrupted labor of which can also worsen the health and economic im- markets, raised unemployment, cut supply and food pacts of the COVID-19 pandemic (World Bank 2020b). chains, tightened credit, frozen regional and interna- In SSA, the informal sector absorbs at least 80 percent tional trade, heightened uncertainty, weakened do- of the labor force (Nguimkeu 2014). Informal activities mestic and foreign direct investments, led to a sudden are conducted in-person and cannot easily move on- stop of foreign remittances, contracted business and line. Informal workers typically live and work in pre- consumer demand, buffeted oil markets, and therefore, carious conditions, without adequate access to water, threatened the livelihoods of large swaths of the pop- sanitation, and workplace protection equipment. Most ulation. SSA countries that are highly dependent on oil informal workers do not have insurance and bear the and commodity exports (Angola, Democratic Republic costs of COVID-19 testing and treatment. In fact, house- of Congo, Ghana, and Nigeria), tourism (Cabo Verde, hold out-of-pocket health expenditure remains high in Ethiopia, Mauritius, and Seychelles) and remittanc- several African countries and could reach over 70% of es from abroad (Nigeria, Ghana, Kenya, and Senegal) current health expenditure as in Cameroon, Comoros, have been hit particularly hard. To limit the economic Equatorial Guinea, Guinea-Bissau, Nigeria, and Sudan harm of the COVID-19 pandemic and support recovery, (World development indicators 2019). Even before the many governments in SSA have eased their monetary pandemic, access to health care, including free health stance (Ghana, Kenya, Mauritius, Rwanda, and South care, was out of reach for informal workers, as the cost Africa), and lowered reserve requirements to increase of missing even one day of work is far too high a price liquidity (Botswana, Mozambique). Virtually all coun- to pay (Gerdin and Kolev 2020). tries provided substantial fiscal support and some are offering social protection support including direct cash Given that the vast majority of jobs in SSA are in the in- transfers (Cabo Verde, Namibia, Rwanda, and Uganda). formal sector (Bonnet et al. 2019), containment restric- Some are focusing on food distribution (Burkina Faso, tions clearly curb the ability of many workers to earn Niger, Nigeria, and Senegal) as well as fee waivers for a living and put a huge strain on their families. This is basic services to households and businesses (Demo- particularly true for women and men who are the single cratic Republic of Congo, Gabon, Ghana, Mali, Togo). head of households. The precarious nature of informal Of course all of these interventions are needed in most labor means that their daily source of income could countries. To further strengthen the relief effort, there be significantly affected by the pandemic, especially have been calls for international assistance, especial- during confinement periods (Ataguba 2020). There- 3 A Tale of Africa Today: balancing the lives and livelihoods of informal workers during the COVID-19 pandemic fore, lockdowns and social distancing measures are employment is the main source of income for people ill-suited for informal workers who must go out each in SSA, which has the highest share of informal labor day to earn a living among the outdoor markets and compared to other regions of the world. As shown in shops on the streets. Figure 1a, 86% of workers—about 20 percentage points higher than in emerging markets and developing econ- omies (EMDEs)—are employed in the informal sector. Informality Increases Vulnerability to Moreover, both young and older persons tend to face a COVID-19 Outbreaks higher level of informality (Nguimkeu and Okou 2019). In Africa, 95% of young and older persons are informal Overview of informal labor. The share of informal la- workers. This share is much higher than the average bor ranges from 43% (Gabon) to 98% (DR Congo), with for EMDEs (85%) and worldwide (77%), as shown in Fig- 88% in Ghana, 90% in Tanzania, 47% in Ethiopia, 95% ure 1b. in Mozambique, and an average of about 77% of total employment in the 46 SSA countries represented in Ta- Overview of informal businesses. Informal enterpris- ble 1. Most informal workers lack an alternative income es, which account for about 90% of all enterprises in or savings to rely upon when external shocks or crises SSA, share many of the same vulnerabilities as indi- hit--such as they are experiencing right now. Studies vidual informal workers. (Benjamin and Mbaye 2012). show that informal insurance arrangements between These are mainly unregistered small-scale units, such informal workers are often weak (Coate and Ravaillion as carpenters, shop owners, restaurant owners, gro- 1993; Ligon et al 2002). Social distancing measures cers, employing ten or fewer undeclared and low- create new vulnerabilities for these workers and their skilled workers including unpaid family workers who communities. Staying home and missing work is lost in- labor in precarious conditions without social protec- come that quickly, within days, leads to missed meals, tion or health and safety measures at the workplace or not paying rent. COVID-19 containment can lead to (ILO 2020). These microenterprises are usually exclud- a stark trade-off for informal workers: “die from hunger ed from any sort of financial assistance program, and or from the virus” (ILO 2020). Unfortunately, informal Figure 1: Pervasive Informal Labor in Africa a. Informal employment, by region and level of development, 2016 100 85.8 85.8 Share of informal employment (%) 80 71.4 68.6 69.6 68.6 68.2 71.9 71.9 61.2 53.8 63.9 63.9 60 62.8 59.5 59.2 50.5 49.6 36.8 40.0 40 36.1 25.1 30.0 21.7 19.4 18.3 20 15.6 20.8 19.5 18.9 17.1 14.4 0 Asia and the Pacitic Americas Europe and Central Asia Total Africa Arab States Asia and the Pacitic Americas Europe and Central Asia Total Africa Asia and the Pacitic Arab States Americas Europe and Central Asia Total Developing & Emerging Developed World In the informal sector In the formal sector In households Including agriculture Source: Nguimkeu and Okou (2019) 4 A Tale of Africa Today: balancing the lives and livelihoods of informal workers during the COVID-19 pandemic b. Formal Employment, by Worker Age and Economy’s Level of Development, 2016 World Developing & Emerging Developed 100 100 100 84.7 84.1 90 80.8 83.4 Share of formal employment (%) Share of formal employment (%) Share of formal employment (%) 90 90 78.8 80 80 80 70 70 70 60 60 60 44.3 61.5 50 50 50 40 37.4 41.4 40.8 40 33.4 40 22.9 21.2 30.2 35.7 30 30 15.6 27.2 30 20 20 11.5 20 10 10 10 0 0 0 Youth (15-24) 25-29 30-34 35-54 55-64 65+ Youth (15-24) 25-29 30-34 35-54 55-64 65+ Youth (15-24) 25-29 30-34 35-54 55-64 65+ Africa Americas Africa Americas Americas Asia and the Pacitic Arab States Asia and the Pacitic Arab States Asia and the Pacitic Europe and Central Asia Developed Europe and Central Asia World Europe and Central Asia Developing and Emerging Source: Nguimkeu and Okou (2019) they would often opt to keep operating despite social income (measured by GDP per capita), and the quality distancing requirements. Fortunately, in some African of their healthcare system (measured by public Health countries, governments are providing assistance to Expenditure). In this sample of countries, GDP per capi- households and small businesses. For example, Niger ta ranged from US$211 in Burundi to US$14,385 in Sey- and Togo have suspended tariffs for electricity and chelles, with an average of US$2,614. Likewise, health other utilities. Nigeria has implemented a cash trans- expenditure ranges from 0.9% of GDP in Nigeria to 7% fer program for small businesses called “Trader Moni”. of GDP in Swaziland. We look at the total number of con- These types of actions should be extended to all Afri- firmed official cases as of April 10, 2020, about 3 weeks can countries as they help informal businesses comply after the first effective onsite of the disease in most with containment measures. countries.1 With this choice, we hoped to use a distribu- tion of cases that better reflects the early conditions of Effects of informal labor on the COVID-19 spread. In- formal workers and enterprises are expected to have Figure 2: Cases of COVID-19 and size of informal increased vulnerability to COVID-19 outbreaks due to employment in SSA the living and working conditions under pervasive in- formality. Figure 2 shows a scatter plot of the relation- 8 ship between the number of cases of COVID-19 and ZAF rates of informality – measured as the share of informal CMR CIV NER BFA labor – in a sample of SSA countries. This relationship 6 GHA MUS is illustrated with an upward-slopping line thus suggest- NGA COD Log COVID-19 cases KEN GIN SEN RWA MLI MDG ing that increased levels of informal employment are TGO 4 ETH COG associated with higher rates of COVID-19 infection. For GAB ZMR CNB ERI UGA LBR BEN ACQ TZA example, countries like Cameroon (CMR) and Burkina GNO NAM SOM SUD MOZ BWA SWZ TCD ZWE Faso (BFA) are at the top-tier of those with both high- 2 SEY CPV MWI SLE CAF MRT er levels of informality and COVID-19 cases, whereas SSA SSO BDI GMB countries like Botswana (BWA) and Seychelles are at the bottom-tier. 0 40 60 80 100 Share of informal employment We conducted a more thorough analysis of the relation- Log Total Cases Fitted Values ship between informal employment and the vulnerabil- ity to COVID-19 spread among 46 SSA countries, while also accounting for their disparities in population size, Source: Authors Calculations 5 A Tale of Africa Today: balancing the lives and livelihoods of informal workers during the COVID-19 pandemic these countries before containment measures took ef- as Nigeria, Rwanda, Uganda, and Zimbabwe have im- fect. Given that outbreaks may also lead to widespread plemented a wide range of non-pharmaceutical policy job losses that push many workers into the informal sec- interventions (NPIs) including social distancing, lock- tor, using pre-crisis measures of informality helps focus downs, curfews, and travel bans, etc., during different on the analysis on the effect of informal labor on workers phases of the COVID-19 outbreak. By contrast, some vulnerability to COVID-19, and not the other way around. countries, such as Benin, decided against strict lock- downs amid concerns of the socioeconomic effects. Figure 3: The effect of some key indicators on Countries that implemented effective NPIs are expect- COVID-19 transmission in SSA ed to substantially reduce the spread of COVID-19 in the longer term. Given limited data availability on these interventions, the model discussed in Table 2 does not explicitly account for NPIs among the model explanato- Informal Share (%) 3.99% ry factors. Accordingly, the analysis purposely focuses on the first month the pandemic hit SSA, from late Feb- ruary 2020 to early April 2020, before most interven- Population Size (millions) 1.42% tions were fully in place or effective. This should help limit the confounding influence of NPIs on the spread of the COVID-19 in our estimations. GDP per capita ($1000) 13.3% Conclusion Health Expenditure (%) Informal sector workers in SSA are critically exposed to -15.5% the COVID-19 pandemic, not only because they are most -.6 -.4 -.2 0 .2 .4 vulnerable to socioeconomic shocks but also because they live and work in close proximity, increasing the like- Source: Authors Calculations lihood of infection. To save lives and protect livelihoods, policymakers should implement programs that target in- formal sector workers and businesses. These should in- The analysis confirms that higher rates of informal em- clude reducing the opportunity cost of staying at home ployment (as a fraction of total employment) are asso- during crises and increasing conditional cash transfers, ciated with higher rates of COVID-19 infection or dis- food assistance, supplies distribution and healthcare sup- ease spread. Not surprisingly, countries with relatively port, especially for informal workers and socially vulner- larger populations are also more likely to experience able households. Expanding social protection programs, higher rates of infection. However per capita GDP and fee waivers, and access to credit, as well as debt relief health expenditure, generally considered driving fac- for informal businesses and workers can all help further tors for improved health outcomes (Cutler et al., 2006), mitigate the economic cost of the COVID-19 shock. Better do not appear as significant predictors of the spread of support systems and social protection programs could COVID-19 in SSA. This result is consistent with those help reduce the spread of disease outbreaks, especially found by Nguimkeu and Tadadjeu (2020) with a robust if workers are allowed to stay home. Finally, this pandem- model that included epidemiological, environmental, ic is a clear reminder of the need for African countries and demographic factors. This implies that, while in- to strengthen their health systems, ease access to health come can improve material conditions, it is not associ- services and accelerate efforts in universal health cover- ated with a significantly lower level of COVID-19 spread age of informal sector workers and their families. Studies in SSA. Likewise, increased public health expenditure, show that some developing countries have begun the which is a commonly used indicator for the quality of hard work to support informal workers with social protec- healthcare infrastructure (see Ssozi, and Amlani, 2015; tions (see e.g., Wagstaff et al. 2016), and SSA countries Gallet and Doucouliagos, 2017), had no statistically sig- such as Ghana have already taken the lead.2 Follow up is nificant association with the spread of COVID-19. also key, as the months ahead will show us the efficacy of these initiatives. Effects of non-pharmaceutical policy interventions. 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Available at https://www.worldometers.info/coronavirus/ (Accessed 11 June 2020). CITATION: A Tale of Africa Today : Balancing the Lives and Livelihoods of Informal Workers During the COVID-19 Pandemic (English). Africa Knowledge in Time Policy Brief;Issue 1;no. 3 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curat- ed/en/798701601482469323/A-Tale-of-Africa-Today-Balancing-the-Lives-and-Livelihoods-of-Informal-Workers-During-the- COVID-19-Pandemic 7 A Tale of Africa Today: balancing the lives and livelihoods of informal workers during the COVID-19 pandemic Photo: Sambrian Mbaabu / World Bank WORLD BANK GROUP Afric R ion, Offic of th Chi f Economist