Coronavirus OP-ED

Support for jobs in the informal sector: The case for a special Covid-19 grant

By Kate Philip 22 March 2020
Caption
Residents of Alexandra township buy goods from the informal corner 'spaza' shop near Sandton, Johannesburg, South Africa, 15 October 2010. EPA/KIM LUDBROOK

Important as they are, proposals for economic relief for the small business sector leave out enterprises in the informal sector, yet job and income losses here are likely to be severe. This will have dire knock-on effects on poverty in poor communities, where the informal sector often provides people with a tenuous grip on survivalist livelihoods. Targeted at the poorest decile, most of whom receive no other form of social grant, a special grant would simultaneously address the needs of the most vulnerable. It would also act as a trickle-up economic stimulus for the economy as a whole.

The South African government has moved quickly and decisively to shut down the transmission of Covid-19. This should save many lives. In the process, though, both the pandemic and the measures to contain it threaten to dramatically deepen our existing crisis of unemployment, poverty and inequality. A special Covid-19 grant targeted at the poorest decile is needed to mitigate these effects — while also providing an economic stimulus.

Many stakeholders are putting forward proposals for economic stimuli and relief that include a focus on the small enterprise sector and on wage relief for companies. This all matters, of course. Yet proposals linked to UIF benefits, to tax relief, to new lines of credit or to enterprise grants all limit the response to formal enterprises and formal workers. None will reach the informal sector — or those who have fallen through the cracks of our existing social protection systems. 

Yet the informal sector contributes to jobs, incomes and livelihoods for about 2.5 million workers and business owners. According to the 2017 Survey of Employers and the Self-Employed (SESE), there are 1.8 million people running non-VAT registered businesses in South Africa, largely owner-operated, without additional employees. Around 67% of individuals who run such non-registered businesses do so because they are unemployed and/or have been recently retrenched — with 28% of these businesses run by young people. The sector also provides paid employment to about 850,000 people — almost twice the direct employment in the mining sector. 

Support to the sector also matters because of the crucial role it can play in the containment effort during this period. It is vital to the food provisioning strategies of local communities and in addressing their basic needs. The context in which, in most townships, there is a spaza shop on each corner and street traders and service providers nearby needs to be leveraged as an asset in the containment effort, with a need to mobilise their support and awareness of their role in this regard. 

Certainly, the quickest way to limit the poverty impacts of this crisis is to augment existing social grants, all of which typically benefit households as a whole. Yet, despite their many strengths, existing grants still leave large numbers of unemployed people without any direct means of support. The poorest decile consists mainly of people with no access to any form of social grant. Expanding the existing grants is therefore limited in reaching them.

This is why we need a special Covid-19 grant: to augment our existing social support systems in ways that put money in the hands of those who need it most — as fast as possible. Doing so will directly address the impending crisis of heightened poverty, but in the process, it will also boost demand in ways that can be expected to benefit the informal sector — trickling up into the wider economy from there. 

There is plenty of evidence of the stimulus effects of such a transfer. According to Ugo Gentilini, Global Lead for Social Security Nets in the World Bank “…it has become clear that cash injections can spark wider knock-on benefits. In Africa, the provision of $1 in such programs generated between $1.27 and $2.60 in local economies. In the United States, a dollar’s worth of SNAP, a quasi-cash scheme, leads to $1.79 in economic gains”. 

There are, of course, a range of design questions for such a grant. They will need to be debated. Time is however of the essence, and what seems most likely to get quick multi-stakeholder agreement is a time-bound, crisis-linked initiative that is targeted at the most vulnerable.

The proposal is therefore for monthly payments over a five-month period, tapering over the last two months to avoid a “cliff”. This would limit the cost while at the same time giving real relief and a measure of security to poor households through what is currently expected to be the worst phase of the pandemic and its knock-on poverty impacts. If there is funding appetite or opportunity for a longer duration — all the better.

How would this be targeted? The most vulnerable are people with no direct access to social grants, with no access to UIF entitlements or the many other benefit and relief schemes currently in play, and/or who are not earning, with PAYE used as a proxy for this. 

Yes, indeed: that proxy would fail to capture earnings in the informal sector. But in the current context, rather than this being an error of inclusion, informal sector entrepreneurs are one of the targets of such a grant. They are being directly targeted to provide income support, to pre-empt a push-back into poverty. They are also being targeted indirectly, through the wider consumption effects. Both dimensions help save precarious jobs.

In the digital era, targeting this cohort does not have to require complex means-testing at prohibitive cost. The critical question, however, is how far government has gone in relation to long-standing proposals to join up the relevant data.

If it is joined up, then applicants can easily be screened for eligibility against their ID numbers — aiming for inclusion of the currently excluded. If not, then now is the time to do this — and fast. Applications for the grant can then be kept simple, with registration on mobile applications as well as at key points such as post offices and retail outlets. 

There are also opportunities for significant innovation in the design of the grants platform, to optimise the economic multipliers in local economies. The use of blockchain technology on mobile platforms can circumvent costly banking transactions at the same time as providing a high level of security.

Use of mobile money includes the ability to track mobile transactions, giving a wealth of spatial economic data. The potential also exists to incentivise the use of the grant within local economies. This would help limit the need for consumers to travel to malls and CBDs, assisting in the Covid-19 containment effort, while simultaneously boosting small and informal entrepreneurs in ways that could have longer-term systemic effects in enabling local economic multipliers. 

Yes, these kinds of outcomes would require a big push in the use of digital technology on mobile platforms in communities and by small and informal enterprises — even if the grant design needs to enable other forms of access also, in recognition of the risks of exclusion. But ease of access to grant transfers for beneficiaries and to increased turnovers for entrepreneurs can provide real incentives for accelerated adoption, creating an opportunity to use this crisis to support such leaps.

This can create significant opportunities for enhanced development intervention across a spectrum of metrics as a consequence, with the special Covid-19 grant providing a “sandbox” opportunity for innovation. Nor do these applications of technology need to be invented; many are waiting in the wings for just such an opportunity and imperative.

The process of getting the word out and also of digitally activating potential beneficiaries provides an opportunity for public employment, youth service and social co-ops and programmes. So for example, some of the 240,000 participants in the Community Work Programme — which has a presence in the poorest wards of every municipality — could be trained as “digital ambassadors”, able to assist people with the registration process. This would draw from lessons from the Digital Ambassador Programme of the City of Johannesburg, which digitally activated more than 400,000 people. In the process, new forms of work in public employment are created, that are attractive to youth and that give them digital skills. 

If adopted, South Africa will certainly not be alone. The developed world is racing to roll out economic stimuli at unprecedented scales. Hong Kong has announced that it will reach its seven million adult residents with a once-off payment. According to Gentilini, Indonesia, Malaysia and China are all expanding their flagship cash programmes as part of their Covid-19 response.  

What would it cost? Targeted at six million people, with a payment of R1,000 a month for three months tapering to R750 and R500 in the outer months, this would cost R25.5-billion. The R1,000 level aligns with programmes such as the Community Work Programme and Youth Service and avoids the risk of arbitrage between programmes. These payments would start per person on successful application, with the rollout therefore staggered over a period of time as people enrol, within a window period for applications that could stay open for six months. The sooner enrolments take place the better, but the poverty impacts of this crisis are likely to extend well beyond the peak infection period, so staggered rollout has its own advantages. 

Where would the money come from? This would be a legitimate use of the UIF Reserve of over R150-billion raised from workers and the private sector to provide social protection in a context of unemployment. Using these unclaimed funds for the purpose of a special Covid-19 grant is directly aligned with the mandate of the fund; some of the other claims currently being made on it are not.

Important as such a grant could be, there is no suggestion that it should replace all other mechanisms of economic relief under discussion — whether for wage-workers or the small business sector. Its purpose, however, is to ensure that the informal sector and the most vulnerable don’t fall through the cracks — while providing a real stimulus to the wider economy.

South Africa acted fast to stop transmission to save lives; the challenge now is to act equally fast to stop the potentially exponential spread of deepened poverty and despair. DM

Dr Kate Philip is a development strategist. She is currently supporting the Presidential Youth Employment Intervention. This article is written in her personal capacity.

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