By Nontobeko Mlangeni, Head of Solutions Mapping
We are no doubt living in turbulent times, due to the COVID-19 pandemic. While the enemy may seem invisible and surreal, the onus is now on us to take action in solidarity, and focus our combined efforts in doing all we can to protect one another, and ensure that we come out more resilient.
For the informal sector, this is probably one of the biggest challenges the sector will ever face. Between the lockdown and the looming economic downturn, this sector is staring right into the eye of the storm.
It is during this critical time that UNDP Eswatini through the Acc Lab is embarking on a journey to engage with this sector and map solutions for access to finance.
Assigned with the task to explore the informal sector in the COVID-19 pandemic and identify areas of intervention for UNDP, we found a wealth of information that shows how this sector is lagging in adaptive measures to external pressures such as those posed by COVID 19, and the capacity to absorb or tap into resources that are available to other Small Medium Enterprises (SMEs).
Informal employment is the main source of employment in Africa, accounting for 85.8 % of all employment (ILO, 2018). A majority of Emswati, 75%, earn their income from the informal sector or are depended on someone in the informal sector. Women constitute 65% and 25% are youth. 72% of those women are self-employed with a monthly salary of E719.00 (US$ 39.00). Informal Cross Border Trade (ICBT) contributes for 30-40% to intra-SADC Trade of which 70% of informal cross border traders are women (ILO, 2004). A study by the United Nations Development Fund for Women (UNIFEM) on Women in Informal Cross Border Trade (WICBT) in Southern Africa, including Eswatini, revealed that their trading activities are the main source of income for families - to buy food, pay school fees, health care services and rent, save in savings clubs and banks and reinvest in their businesses. This brings attention to the gender dimension, revealing the disadvantaged position of women and the need to empower them.
Eswatini like other countries has been affected by the lockdown including, curbing the informal sector, of their main source for livelihoods. When we engaged the sector, we quickly realised that they view things differently from mainstream society. While we are all faced with a health risk of COVID-19, they must, daily deal with health risks of the unsanitary workspaces. COVID 19 pandemic is not a top priority. Instead the highest risk is being unable to put food on the table.
Some of the COVID 19 challenges highlighted include the following: loss of incomes and business due to prevailing lockdowns; spoilage of stock; lack of cashflow/ liquidity as money is locked in stock that was purchased prior to the lockdown; inability to service loans and other business related debts like rent and stock bought on credit; inability of cross boarder traders to access suppliers; exclusion from current relief programs for SMEs and for poor households; and increase in urban-rural migration as the increasing costs of staying in urban areas cannot be met without an income. This migration further poses a risk of spreading COVID-19 to rural areas.
The key aspects for the informal sector are issues of longer-term sustainability for the welfare of the sector. These include issues of legal validity of the sector as a contributor to the economy and therefore a valid form of employment, issues of the safety and welfare other members of this sector (not just from COVID 19), and issues of sustainable interventions aimed at promoting the sector.
As things are currently slow, the informal sector has chosen to focus on longer term challenges which have always affected this sector, including: financial exclusion; access to finance, especially the lack of documentation and financial record history that would allow increased access to funding from micro lenders; the lack of tailored financial products; financial illiteracy; lack of appropriate infrastructure; including basic sanitary infrastructure; lack of participation in municipal planning and activities; lack of appropriate storage facilities for perishable goods; and lack of validation of the sector as a profession.
Following this sensemaking exercise, the Lab undertook a solution mapping exercise and found several solution developers, through reviewing the results of a hackathon organised by the financial services industry in 2019.
We are currently in the process of designing experiments and developing partnerships with one or two of these developers, aimed at providing business development services, including a platform for inventory management and record keeping for the provision of a financial record history to the informal sector. This experiment will also provide an online marketing platform, starting with the women who have stock for second-hand clothing, thus allowing for business continuity.
The Lab is also finalising the design of an experiment aimed at facilitating digital payments for the informal sector through mobile money platforms and linking these platforms with their income and expenditure records including their records in Stokvel activities. A stokvel is an informal savings pool where a group of individuals contribute a monthly amount and the group has full control of how they use that money. In many cases in the context of Eswatini, the informal sector funds its business capital through these Stokvels. Having a digital and authentic record of their activities (saving, borrowing and repayment of loans) in these Stokvels will provide an opportunity for a financial and credit record history for the informal sector which will (hopefully) enable them to get access to funding.
The Lab is looking at these experiments as part of value addition for the informal sector. The lessons learned are envisaged to build the ability for the sector to recover and build better. As a Lab, we are still on a journey to learn more about the informal sector and how we can intervene to support its path to resilience.