PUBLISHED: THU, 08 APR 2021 12:43:06 GMT
In the year since COVID-19 hit, economies across Africa have experienced a dramatic slowdown. Even countries with limited initial incidence of the virus faced severe economic aftershocks. Significant disruption in agricultural markets and labor in sub-Saharan Africa has restricted income and led to rapid food insecurity for many.
As African and global leaders meet at the World Bank and IMF Spring Meetings this week to discuss steps countries can take to rebuild their economies from the pandemic, they need not reinvent the wheel. The Gates Foundation offers three suggestions for how countries can make their economies more resilient to future shocks including climate change, natural disasters, and the next pandemic.
Making sure emergency financial support could reach people quickly became a priority for many governments, but with lockdowns and social distancing, traditional means of distributing relief were often unavailable. Countries which had invested in making their financial systems more inclusive before the pandemic were able to mitigate the most severe economic shocks to households.
The ability of these countries to act wasn’t built on radical reinvention, but rather on effective use of established solutions that drive digitization, growth, and inclusion. Of course, there is a limit to how much countries can expand financial access amid a crisis, so the time to upgrade financial regulations and infrastructure to drive inclusion is now.
As African and global leaders meet at the World Bank and IMF Spring Meetings this week to discuss steps countries can take to rebuild their economies from the pandemic, they need not reinvent the wheel. Here are three suggestions for how countries can make their economies more resilient to future shocks including climate change, natural disasters, and the next pandemic.
First, countries should craft financial services regulations that provide space for companies and industry to innovate, while safeguarding consumers against risks, including data privacy and cybersecurity. When countries get their financial regulations right, the benefits of financial inclusion can accrue rapidly.
For example, mobile money penetration in Ghana tripled between 2014 and 2017, while overall financial account access increased from 41 percent to 58 percent. The catalyst for this remarkable growth was the Bank of Ghana’s introduction of new electronic money regulations in 2015, which permitted non-banks, such as mobile operators, to own and run mobile money businesses, while simplifying the process for consumers opening entry-level accounts. These reforms demonstrate how central banks can rapidly expand financial access, while maintaining safe and effective systems.
But upgrading financial services regulations is only part of the solution. Governments need to increase their ability to identify citizens and transact with them safely and quickly. Investing in inclusive digital payment and identity infrastructure is the second step governments should take to rebuild their financial systems and build more resilient economies.
During the COVID-19 pandemic, countries with high levels of payment and ID connectivity could quickly identify and deliver payments to households eligible for emergency funds. Digital payment and ID systems eliminated the need for people to complete paper forms or contend with crowded lines to receive emergency funds; they could apply online or by SMS and be paid digitally. In Namibia, which has high ID uptake and enabling e-money regulations, informal workers could apply for assistance via SMS; approved applicants then received an e-wallet token that could be withdrawn at an ATM or used for digital transactions. Within three weeks, the government had distributed cash digitally to over one-third of working-age adults.
By contrast, countries with limited payment connectivity and identity systems had less effective options. Some governments had to physically deliver cash, while others relied on social protection measures, such as subsidizing the price of food or fuel.
Fortunately, governments seeking to upgrade their digital financial systems need not start from scratch. They can make use of new, open-source payment and identity platforms, such as Mojaloop and MOSIP, built on best-in-class privacy, data protection, and cybersecurity frameworks. These innovations are already accelerating digital financial inclusion in several countries. Ethiopia and Guinea are exploring pilots based on the MOSIP platform.
A third step governments can take to build more resilient economies is to put women front and center. A growing body of experimental evidence demonstrates that getting money into the hands of women to connect them to the formal financial system, can lead to long-term benefits, including more decision-making power in their household, and greater economic security.
Through targeted emergency payment systems, enabled by strong, inclusive digital financial systems, governments have bolstered economic activity and supported women during the pandemic. In Togo, the government set up the NOVISSI cash transfer scheme to support the most vulnerable citizens, whose daily income was disrupted by the pandemic. Through the program, more than 370,000 women in Togo received financial aid between April and June 2020.
A full understanding of the outcomes of rapid response measures undertaken by governments to alleviate the economic impact of the pandemic will take time. It is clear, however, that over the last year, governments have preserved millions of lives and livelihoods through judicious use of inclusive digital financial infrastructure.
As we emerge from the pandemic, governments have an opportunity to use lessons from the crisis to build the inclusive financial systems they will need to respond to future economic crises. By doing this, they can also position their economies for growth and resiliency in this digital century.