While commending government for the recently announced N$8.1 billion economic stimulus package to offset the effects of dealing with Covid-19, local economists have proposed additional grants. These special grants would address the most vulnerable in society and infrastructure investment.
“Targeted at the poorest decile, most of whom depend on informal or subsistence activities and who also receive no other form of social grant, we propose the establishment of a separate or special grant to concurrently address the needs of the most vulnerable, namely the informal sector businesses. We believe that this grant not only will it soften the impact on the businesses in the informal sector, but it would also act as a trickle-up economic stimulus for the economy as a whole,” said Mally Likukela, MD of Twilight Capital Consulting.
According to Likukela, the informal sector is of vital importance to the domestic economy, as it provides employment to an estimated 150 000 people and contributes an estimated 12% to Gross Domestic Product (GDP).
“The informal sector businesses enterprises woke up to a sad reality on 27 March 2020 when they found themselves suddenly out of business and work due to a 21-day lockdown. Unlike their formal counterparts, most of whom were privileged to be granted ‘essential service’ status and thus continued trading, informal sector businesses lost businesses overnight as a result of the forced quarantines and stay-at-home orders,” said Likukela.
He further cautioned that if the stimulus package is implemented in its current form, large proportions of informal workers, who operate in mostly paperless environments and who depend on irregular daily wages with small safety nets to fall back on, will be left out in the cold to fend for themselves.
“If aid will come through at all, it will probably take longer time and when it does finally come through, its impact will be diluted in the bureaucratic pandemonium that will ensue,” Likukela warned.
Another local economist Klaus Schade told Inside Business that after the state of emergency is lifted, there will be a need for another stimulus package to channel liquidity into the economy and to create jobs, as even if businesses re-open, they will not immediately operate at full capacity.
“Therefore, government needs to consider a stimulus package in form of infrastructure investment. The tourism sector will take longer to recover, since tourists have cancelled their plans and are weary of another wave of lockdowns should the virus spread again after the lifting of bans on movement of people. Also, the diamond sector will feel the impact later in the year due to a drop in demand in the USA and China in particular,” said Schade.
The recent state of emergency, coupled with the lockdown in Khomas and Erongo regions, is expected to hit poor people working in the informal economy hardest.
Said Likukela: “Due to the package’s linkages to tax relief, to new lines of credit or to wages subsidy or income grants, etc., we believe that the benefits will limit the response to formal enterprises and formal workers – who can provide proof of income tax registrations and payslips, etc”.
He pointed out that in the context of the beneficiation from the stimulus package during the current crisis, the informal sector is beset with numerous challenges due to its very nature of the operation, specifically without paper trails.
“Particularly, informal sector businesses like barbershops, taxis, bus operators and many of these informal businesses are operated by liquid cash and not formal business bank accounts. Furthermore, these businesses have no bookkeeping records, which are required in tax assessments. Finally, there is no database of businesses within the informal sector, especially hair salons, barbershops, although taxis and bus operators to register their taxis and buses,” Likukela noted.
Meanwhile, Schade expects the domestic economy to experience a contraction in the second quarter due to the state of emergency. “The economy has most likely already slowed down in the first quarter due to depressed demand for commodities and lower commodity prices,” Schade sated.
Globally, he expects many advanced economies to enter into double-digit recessions in the first and second quarters of 2020 but noted they could rebound in the third and fourth quarters.
“This, however, will depend on a number of factors, such as the length of the production disruptions due to lockdowns, the effectiveness of intervention programmes by governments and central banks, and the speed of the normalisation after bans are lifted,” Schade concluded.