Economies across Africa have experienced dramatic slowdown even countries with limited initial incidence of the virus faced severe economic aftershocks. Significant disruption in agricultural markets and labour in sub-Saharan Africa has restricted income and led to rapid food insecurity for many.
Ensuring 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 unavailable. Countries which had invested in making financial systems more inclusive mitigated the most severe economic shocks to households.
The ability of the countries to act wasn’t built on radical reinvention, but rather on effective use of established solutions that drive digitisation, 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 policies and infrastructure to drive inclusion is now.
As African and global leaders look to implement plans following discussions at the World Bank and
IMF Spring Meetings last week about steps countries can take to rebuild economies from the pandemic, they need not reinvent the wheel. Here are three suggestions for how countries can make economies more resilient to future shocks.
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 cyber security. When countries get financial regulations right, the benefits of financial inclusion can accrue rapidly. Governments also need to increase 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 financial systems and build more resilient economies. During the 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. 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 subsidising 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 built on best-in-class privacy, data protection and cyber security frameworks.
These innovations are 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 centre. 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. An 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 use of inclusive digital financial infrastructure.
As we emerge from the pandemic, governments have a chance 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.