How Nigeria can forge an inclusive economic recovery


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 predicted in 2020. The economic fallout from the pandemic for Africans, however , will be different and could be more serious than for the rest of the world.

Sub-Saharan Africa represents more than half of the world’s population 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, severely eroding the progress African countries have made in reducing poverty over the past two decades .

When the pandemic was declared in April 2020, BCG advised African governments to develop comprehensive plans in response to the healthcare crisis and to address broader economic and societal challenges. We continue to believe that the best solution 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 spur development initiatives. sustainable economic. An inclusive approach to economic recovery can protect the most vulnerable populations in the short term and improve their long term prospects. Some initiatives in Nigeria are a good example.

The economic fallout from the pandemic in Nigeria

Nigeria is Africa’s largest economy and one of four African countries on BCG’s Middle Billion list of rapidly transforming developing countries where local entrepreneurs attract global investment, especially in emerging industries focused on technology. Yet nearly 83 million people – 40 percent of the country’s population – live below the country’s poverty line of $ 381.75 per household per year, according to the Bureau’s 2018-2019 Living Standards Survey. National Statistics of Nigeria.

The World Bank’s 2021 projections for sub-Saharan Africa as a whole warn of a prolonged economic flow throughout the year. Even with a slight rebound from the recession, there is a risk that a sharp drop in per capita income will push tens of millions more into poverty. South Africa and Nigeria, the continent’s most populous country, face the most serious setbacks, according to projections. Falling oil prices, combined with factors linked to the pandemic, are exacerbating strains on the Nigerian economy and risks for its most vulnerable citizens.

These concerns have prompted the Nigerian government to undertake a wide range of activities to stimulate economic growth with an emphasis on economic inclusion. Specifically, Nigeria aims to leverage public-private partnerships to create economic opportunities for marginalized populations.

In June 2020, the Nigerian government revised its economic sustainability plan to double stimulus investments and policy interventions to revive the growth of basic industries (such as petroleum, tourism and aviation) and accelerate recovery. growth of emerging companies in other industries (such as small and medium enterprises and alternative energy) that promote inclusion and economic opportunity. Specifically, the government is focused on expanding mobile smartphone services, digital financial services, and home solar electricity for low-income households.

Mobile Money and Telcos connect

Using cash and paying bills in person has always been the norm, especially among unbanked populations. That 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 wrote, financial institutions in Africa were the first to introduce mobile payments.

In Nigeria, the surge in cashless transactions has prompted mobile money providers to take advantage of the networks of telecommunications companies to recruit mobile money customers. This is important because most of the poor Nigerians own a cell phone, but they do not have a bank account.

The percentage of the adult population with access to financial services in Nigeria has increased at a compound annual growth rate (CAGR) of 6% from 2008 to 2012 but 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 significant reforms implemented by the Nigerian government before the pandemic to accelerate financial inclusion.

In 2018, for example, the government released payment services guidelines for financial service providers and telecom operators seeking to expand their customer base among the unbanked, especially in rural areas. However, it took some time for the Central Bank of Nigeria (CBN) to issue the licenses telecom operators need to operate as a payment services bank (PSB). In August 2020, the CBN authorized three new PSBs, which can now offer high-volume, low-value digital transaction services, such as remittances, micro-savings accounts and withdrawals. Extending the reach of mobile banking services to rural unbanked populations could also allow the government to deliver social benefits directly to the bank accounts of these citizens.

Solar service to use

The Nigerian government aims to install new solar home power systems and mini-grids for 5 million low-income households by the end of 2023. Many of these households – who depend on inefficient small generators for electricity or have no power source at all – will need to use PAYGo, an installment financing option available with mobile money bank accounts, to purchase installation kits for these systems. Customers with an existing mobile money account can apply for and qualify for a PAYGo loan more easily than others.

Our analysis shows that a PAYGo loan would make solar kits affordable for around half of the 31 million households that do not have reliable electricity and can also consider themselves to be in a low income bracket. Additionally, we found that 3.2 million out of 17 million households currently using kerosene and candles as a source of lighting could afford the monthly PAYGo payments based on their current lighting expenses, plus about 10% of their non-food budget.

We predict that the scaling up of mobile money accounts, as well as home solar power kits funded by installment loans, will have a lasting economic impact on low-income populations well beyond any recovery. by 2021. A recent USAID study estimates that 15% to 30% of PAYGo solar customers will create a credit history for the first time when they purchase a home solar system with a PAYGo plan. This credit history could, in turn, lead to further loans for large expenses, such as school fees, which can consume up to 40% of a family’s annual income. Credit history is also a critical engine of growth for small businesses and new entrepreneurs. The USAID rating also noted benefits 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 a stronger future

While increases in poverty and economic inequality are possible, they are not inevitable. In our view, the economic hardships caused by the pandemic provide an opportunity for governments to examine the strengths and weaknesses of past policies and strategies and to address current structural inequalities in their economies. Linking economic inclusion initiatives across multiple industries could also have positive and lasting multiplier effects. Time will tell if Nigeria’s inclusive stimulus packages are successful. All African governments, and the policymakers working with them, must look beyond the crisis to ensure that the resources deployed today form a better basis for achieving a more equitable future.

About the Author

Tolu Oyekan is a partner of the Boston Consulting Group. He leads the firm’s work on total societal impact in West Africa and is a key member of BCG’s Corporate Finance & Strategy practice. You can contact him by e-mail at [email protected].

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