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By ToluOyekan


As of this writing, the spread ofCOVID-19 in many African countrieshas been more contained, and the deathtoll lower, than some had expected in 2020.The economic fallout of the pandemic forAfricans, however, will be different andcould be more dire than for the rest of theworld.

Sub-Saharan Africa accounts for more thanhalf of the world’s populations living at orbelow the poverty line. A recent WorldBank scenario estimates that COVID-19could push up to 40 million people inSub-Saharan Africa into extreme poverty,seriously eroding the progress that Africancountries have made to reduce deprivationduring the past two decades.

When the pandemic was declared in April2020, BCG counseled African governmentsto develop comprehensive plans in response to the health care crisis and take onbroader economic and societal challenges.

We continue to believe that the best coursefor African leaders is to accelerate economic policy reforms and investments that accentuate inclusion and position countriesfor a stronger post-pandemic recovery.

Indeed, Africa’s economic recovery fromthe COVID-19 crisis depends on how effectively governments will be able to balanceurgent actions to stabilize economies withthe structural reforms needed to stimulatesustainable economic development initiatives. An inclusive approach to economicrecovery can protect the most vulnerablepopulations in the short term and improvetheir prospects in the long term. Select initiatives in Nigeria present a case in point.

The Pandemic’s Economic Fallout in Nigeria

Nigeria is the largest economy in Africaand one of four African countries includedon BCG’s Middle Billion list of rapidlytransforming developing countries wherelocal entrepreneurs attract global investment, especially in emerging tech-drivenindustries. Yet almost 83 million people—40% of the country’s population—livebelow the country’s poverty line of $381.75per household, per year, according to the2018–2019 living standards survey by Nigeria’s National Bureau of Statistics.

World Bank 2021 projections for Sub-Saharan Africa as a whole warn of protracted economic flux throughout the year. Evenwith a modest rebound from recession,there is a risk that a steep drop in per capita income could push tens of millions morepeople into poverty.

South Africa and Nigeria, the continent’s most populous country,face the most severe setbacks, according tothe projections. Lower oil prices, combinedwith pandemic-related factors, add to thestrains on Nigeria’s economy and the risksfor its most vulnerable citizens.

These concerns prompted the Nigerian government to undertake a wide range of activities to stimulate economic growth witha focus on economic inclusion. Specifically,Nigeria aims to leverage public-privatepartnerships to create economic opportunities for marginalized populations.

In June 2020, Nigeria’s government revisedits economic sustainability plan to doubledown on stimulus investments and policyinterventions in order to revive the growthof bedrock industries (such as oil, tourism,and aviation), and accelerate growth inemerging businesses in other industries(such as small and midsize enterprises andalternative energy) that promote economicinclusion and opportunity.

Specifically, thegovernment is focusing on expanding mobile smartphone service, digital financialservices, and home-based solar electricityfor low-income households.


Mobile Money and TelcosConnect

Using cash and paying bills in person havehistorically been the norm, especiallyamong the unbanked populations. This haschanged since COVID-19. From the earlydays of the pandemic, leading contactlesspayment startups in Nigeria launched initiatives to encourage consumers and merchants to sign up for their services. As BCG has written, financial institutions in Africawere the first to introduce mobile payments.

In Nigeria, the push for cashless transactions has prompted mobile money providers to leverage the networks of telecommunications companies in order to sign upmobile money customers. This is importantbecause most poor Nigerians own a cellphone, but they don’t have a bank account.

The percentage of the adult populationwith access to financial services in Nigeriagrew at a compound annual growth rate(CAGR) of 6% from 2008 to 2012 but byonly 1% from 2012 to 2018, according to anannual survey by Enhancing FinancialInnovation & Access, a financial-sector development organization. This low rate persisted despite meaningful reforms implemented by the Nigerian government beforethe pandemic to accelerate financial inclusion.

In 2018, for example, the government issued payment services guidelines for financial service providers and telcos seeking toexpand their customer bases among theunbanked, especially in rural areas. However, it took some time for the Central Bankof Nigeria (CBN) to issue the licenses thattelcos need to operate as a payment servicebank (PSB). In August 2020, the CBN licensed three new PSBs, which can nowoffer high-volume, low-value digital transaction services, such as remittances, microsavings accounts, and withdrawals. Extending the reach of mobile banking services torural unbanked populations could also allow the government to deliver social welfare benefits directly to those citizens’bank accounts.

Pay-as-You-Go Solar Service

The Nigerian government is aiming to install new home solar power systems andmini-grids for 5 million low-income households by the end of 2023. Many of thosehouseholds—which either rely on small, inefficient generators for electricity or haveno power source at all—will need to usePAYGo, an installment financing option of fered with mobile money bank accounts, topurchase the installation kits for these systems. Customers with an existing mobilemoney account may apply and qualify for aPAYGo loan more easily than others.

Our analysis shows that a PAYGo loanwould make solar kits affordable for abouthalf of the 31 million households that donot have reliable electricity and may alsoconsidered to be in a low income bracket.

What’s more, we found that 3.2 million outof 17 million households currently usingkerosene and candles as their lightingsource could afford the monthly PAYGopayments based on their current spendingon lighting, plus about 10% of their nonfood budget.

We expect that the scaling of mobile money accounts, along with home solar powerkits financed with installment loans, willhave a sustained economic impact onlow-income populations well beyond any2021 recovery.

A recent USAID researchbrief estimates that 15% to 30% of PAYGosolar customers will create a credit historyfor the first time when they purchase a solar home system with a PAYGo plan. Thatcredit history could, in turn, lead to otherloans for large expenses, such as school fees, which can consume up to 40% of afamily’s annual income. Credit histories arealso a critical driver of growth forsmall-business enterprises and first-timebusiness entrepreneurs.

The USAID briefalso noted advantages for providers: PAYGosolar customers generate more than twiceas much revenue per user for a mobilemoney provider than the average customer.

A Stronger Recovery and Future

While increases in poverty and economicinequality are possible, they are not inevitable. As we see it, the economic hardshipscaused by the pandemic give governmentsa chance to examine the strengths andshortcomings of past policies and strategiesand address the current structural inequities in their economies.

Linking economicinclusion initiatives across several industries could also have positive, and enduring, multiplier effects. Time will tell whether Nigeria’s inclusive recovery planssucceed. All African governments, and thepolicymakers who are working with them,must look beyond the crisis to ensure thatthe resources deployed today build a betterfoundation to achieve a more equitable future.


ToluOyekan is a partner in BCG’s Lagos office. He leads the firm’s work on total societal impact across West Africa and is a core member of BCG’s Corporate Finance & Strategy practice.

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