As
of this writing, the spread of COVID-19 in many African countries has been more
contained, and the death toll lower, than some had expected in 2020. The economic
fallout of the pandemic for Africans, however, will be different and could be
more dire than for the rest of the world.
Sub-Saharan
Africa accounts for more than half of the world’s populations living at or below
the poverty line. A recent World Bank scenario estimates that COVID-19 could
push up to 40 million people in Sub-Saharan Africa into extreme poverty, seriously
eroding the progress that African countries have made to reduce deprivation during
the past two decades.
When
the pandemic was declared in April 2020, BCG counseled African governments to
develop comprehensive plans in response to the health care crisis and take on broader
economic and societal challenges.
We
continue to believe that the best course for African leaders is to accelerate
economic policy reforms and investments that accentuate inclusion and position
countries for a stronger post-pandemic recovery.
Indeed,
Africa’s economic recovery from the COVID-19 crisis depends on how effectively
governments will be able to balance urgent actions to stabilize economies with the
structural reforms needed to stimulate sustainable economic development
initiatives. An inclusive approach to economic recovery can protect the most
vulnerable populations in the short term and improve their prospects in the
long term. Select initiatives in Nigeria present a case in point.
The Pandemic’s Economic Fallout in Nigeria
Nigeria
is the largest economy in Africa and one of four African countries included on
BCG’s Middle Billion list of rapidly transforming developing countries where local
entrepreneurs attract global investment, especially in emerging tech-driven industries.
Yet almost 83 million people—40% of the country’s population—live below the
country’s poverty line of $381.75 per household, per year, according to the 2018–2019
living standards survey by Nigeria’s National Bureau of Statistics.
World
Bank 2021 projections for Sub-Saharan Africa as a whole warn of protracted
economic flux throughout the year. Even with a modest rebound from recession, there
is a risk that a steep drop in per capita income could push tens of millions
more people into poverty.
South
Africa and Nigeria, the continent’s most populous country, face the most severe
setbacks, according to the projections. Lower oil prices, combined with
pandemic-related factors, add to the strains on Nigeria’s economy and the risks
for its most vulnerable citizens.
These
concerns prompted the Nigerian government to undertake a wide range of
activities to stimulate economic growth with a focus on economic inclusion.
Specifically, Nigeria aims to leverage public-private partnerships to create
economic opportunities for marginalized populations.
In
June 2020, Nigeria’s government revised its economic sustainability plan to
double down on stimulus investments and policy interventions in order to revive
the growth of bedrock industries (such as oil, tourism, and aviation), and
accelerate growth in emerging businesses in other industries (such as small and
midsize enterprises and alternative energy) that promote economic inclusion and
opportunity.
Specifically,
the government is focusing on expanding mobile smartphone service, digital
financial services, and home-based solar electricity for low-income households.
Mobile Money and Telcos Connect
Using
cash and paying bills in person have historically been the norm, especially among
the unbanked populations. This has changed since COVID-19. From the early days
of the pandemic, leading contactless payment startups in Nigeria launched
initiatives to encourage consumers and merchants to sign up for their services.
As BCG has written, financial institutions in Africa were the first to
introduce mobile payments.
In
Nigeria, the push for cashless transactions has prompted mobile money providers
to leverage the networks of telecommunications companies in order to sign up mobile
money customers. This is important because most poor Nigerians own a cell phone,
but they don’t have a bank account.
The
percentage of the adult population with access to financial services in Nigeria
grew at a compound annual growth rate (CAGR) of 6% from 2008 to 2012 but by only
1% from 2012 to 2018, according to an annual survey by Enhancing Financial Innovation
& Access, a financial-sector development organization. This low rate
persisted despite meaningful reforms implemented by the Nigerian government
before the pandemic to accelerate financial inclusion.
In
2018, for example, the government issued payment services guidelines for
financial service providers and telcos seeking to expand their customer bases
among the unbanked, especially in rural areas. However, it took some time for
the Central Bank of Nigeria (CBN) to issue the licenses that telcos need to
operate as a payment service bank (PSB). In August 2020, the CBN licensed three
new PSBs, which can now offer high-volume, low-value digital transaction
services, such as remittances, microsavings accounts, and withdrawals.
Extending the reach of mobile banking services to rural unbanked populations
could also allow the government to deliver social welfare benefits directly to
those citizens’ bank accounts.
Pay-as-You-Go Solar Service
The
Nigerian government is aiming to install new home solar power systems and mini-grids
for 5 million low-income households by the end of 2023. Many of those households—which
either rely on small, inefficient generators for electricity or have no power
source at all—will need to use PAYGo, an installment financing option of fered
with mobile money bank accounts, to purchase the installation kits for these
systems. Customers with an existing mobile money account may apply and qualify
for a PAYGo loan more easily than others.
Our
analysis shows that a PAYGo loan would make solar kits affordable for about half
of the 31 million households that do not have reliable electricity and may also
considered to be in a low income bracket.
What’s
more, we found that 3.2 million out of 17 million households currently using kerosene
and candles as their lighting source could afford the monthly PAYGo payments
based on their current spending on lighting, plus about 10% of their nonfood
budget.
We
expect that the scaling of mobile money accounts, along with home solar power kits
financed with installment loans, will have a sustained economic impact on low-income
populations well beyond any 2021 recovery.
A
recent USAID research brief estimates that 15% to 30% of PAYGo solar customers
will create a credit history for the first time when they purchase a solar home
system with a PAYGo plan. That credit history could, in turn, lead to other loans
for large expenses, such as school fees, which can consume up to 40% of a family’s
annual income. Credit histories are also a critical driver of growth for small-business
enterprises and first-time business entrepreneurs.
The
USAID brief also noted advantages for providers: PAYGo solar customers generate
more than twice as much revenue per user for a mobile money provider than the
average customer.
A Stronger Recovery and Future
While
increases in poverty and economic inequality are possible, they are not
inevitable. As we see it, the economic hardships caused by the pandemic give
governments a chance to examine the strengths and shortcomings of past policies
and strategies and address the current structural inequities in their
economies.
Linking
economic inclusion initiatives across several industries could also have
positive, and enduring, multiplier effects. Time will tell whether Nigeria’s
inclusive recovery plans succeed. All African governments, and the policymakers
who are working with them, must look beyond the crisis to ensure that the
resources deployed today build a better foundation to achieve a more equitable
future.
Tolu Oyekan is a partner in BCG’s Lagos office. He leads the firm's work on total societal impact across West Africa and is a core member of BCG’s Corporate Finance & Strategy practice.
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