Africa’s Informal Sector- The secret Opportunity to drive Climate Action

“Teeth do not see poverty.” This African proverb reminds us that people still manage to find something to smile about even when circumstances are dire. This is what we learned during COVID-19 notwithstanding. The impact on the economy, which translated to lost jobs, income and enterprise opportunities for the over 1.3 billion people in Africa, had far and wide-reaching effects in compounding a very precarious scenario — where the region already needs to create about 13 million jobs every year.

This is at the backdrop of climate change. We continuously see millions across the continent lose their home and farmland to erosion due to flooding, forcing them to flee their homes to places where they lack opportunities. This is the story of millions of children displaced by climate change impacts. Many of them are unlikely to ever return to school — a reality that could lead to new inter-generational cycles of poverty.

As fossil fuel emissions that drive climate change continue to rise, efforts to hold global warming to 1.5 degrees Celsius are lagging despite legions of net-zero promises. Scientists say there is now a 50% chance the key barrier will be passed at least temporarily within five years — with worrying implications for everyone, especially the informal sector.

A critical rethinking of the informal economy in Africa

Africa’s informal sector accounts for over 80% of all employment in sub-Saharan Africa. This, therefore, means anything that impacts this informal sector needs to be taken with serious consideration. This is a sector that doesn’t understand the language of bank accounts and VAT but at the end of the day, this is the sector that drives the realities of Africa’s economies. These are the unsung heroes of Africa’s growth and have been so for a long time.

Therefore, it is essential to imagine how bridging support to the informal sector can extend beyond project initiatives. Most projects are time-bound, with limited budgets. If not implemented with longevity in mind, such interventions can create dependencies rather than solve them.

Longer-term, more sustainable solutions must be imagined to bring the formal and informal economies closer together; without this kind of lateral thinking, we will continue leaving most informal sectors stranded on the ground floor, looking upwards. Such structural inequality is unsustainable.

It’s reasonably fair to ask some fundamental questions: How will these people, who depend upon daily sales for their sustenance, be able to provide for themselves and their families?

For example, Africa’s agro-market is estimated to be worth up to $150 billion each year in 5 years. While it is open to global competition, empowering the local informal sector to take the lead in developing competitive local products that can compete for shelf space with goods from elsewhere offers an opportunity for developmental strides in the continent. Enabling this long-term perspective is the trajectory that stimulus packages in Africa should take. Not short-term cash transfers as is the traditional approach currently been used. And for this, the following policy measures can be taken.

First, prioritize buffering informal sector players in the continent’s catalytic sectors. These are economically inclusive sectors — meaning they engage the majority of the population. This implies that maximizing their productivity through value addition means putting more money in more pockets. In addition, these sectors can meet both climate and socio-economic priorities simultaneously. For example, decentralizing solar driers among cassava farmers — where cassava is converted into dried cassava chips that can be preserved for longer, sold to millers to be further processed into cassava flour or eaten as is/or fried into cassava chips, has seen incomes increase by 150% and reduce loss by 30%.

The use of solar driers to dry rice has proven to be 48 times faster than traditional open sun drying and results in better quality, cleaner, more hygienic rice that fetches more in the market — decentralizing simple climate action solutions of solar dryers to farmers in local markets to enable them to dehydrate and preserve their harvest that remains unsold at the end of the day and sell when demand peaks are not only cutting post-harvest losses but increasing earning up to 30 times. All of these are delivered by innovatively applying an accessible climate solution — solar dryers — which enhances incomes without piling on the emissions that exacerbate climate change in the first place. Stimulus packages should aim to buffer these players by targeting the structures they use to conduct their trade.

For example, communal cooperatives are grounded in community financing structures for these players. The stimulus could be targeted at cushioning cooperatives against liquidity crunches, ensuring that delayed payments that may arise from such a slow-down do not render them insolvent and close them down.

The second is prioritizing human capital. A skilled person capable of turning challenges into enterprise opportunities is four times the value of produced capital and 15 times the value of natural capital. Over the years, Africa has overlooked its most important capital — its people and prioritized physical resources instead. But it is not a lost cause. Africa stands out among critical areas for being the most youthful continent globally.

We must urgently invest in the skills retooling of these youth. These youth need to be supported to refine, improve and adapt their skills — regardless of disciplinary backgrounds — for application in establishing enterprises in the catalytic areas of the economy. Therefore, stimulus packages should create incentives in the form of tax breaks, holidays, and rebates — for enterprising youth already engaged in these areas to encourage them and keep them afloat during these turbulent times. Inspiring these youths and ushering them to action through the spirit of innovative volunteerism is vital at this moment.

Innovative volunteerism is structured guidance and inspiration to youth to trigger them to purpose-driven actions and leverage their skills, talents and ongoing initiatives as the premium to build mutually beneficial and complementary partnerships. With the end goal of closing gaps along the agro-value chain by sustainably industrializing it using clean energy. In the process, they benefit by creating climate action enterprises that drive climate action and SDGs and solve major developmental problems in the continent.

Third, the continent must invest purposefully towards unlocking credit opportunities in the informal sector. Africa’s informal sector represents over $300 billion worth of credit market. But this remains untapped because formal credit structures, the commercial banks, remain reluctant to invest in measuring the creditworthiness of players in the informal economy. Over 95% of their transactions are still in cash.

However, with immutability and transparency, modern technologies such as blockchain offer a way to evaluate transactions in the informal sector. The continent should take the lead in formalizing such blockchain technology by establishing ground rules for blockchain governance. For example, being a nascent area, safeguarding local innovators who go into developing solutions in this area through versatile intellectual property protection could be a great starting point.

Africa can ensure future crises do not bite the millions hard through bridging support to the informal sector by using more sustainable solutions to bring the formal and informal economies closer together. Without innovative thinking, structural inequality will persist as we continue leaving most informal sector actors stranded on the ground floor. Remember the African proverb that says there are no shortcuts to the top of a palm tree. Let’s use the logic shared herewith to start.