The relationship between lockdowns and poverty


The covid-19 pandemic is having a significant impact around the world. From the USA, UK, Italy, France to South Africa, governments have instituted total lockdowns and are curbing commercial activities as a means of saving lives. Major CBDs have turned into ghost towns as there is little activity happening. Policemen and soldiers in face masks have been deployed to quarantined cities and spend the day patrolling the streets and enforcing lockdowns.  City hotels are empty while retail foot traffic has plunged. Fewer people are travelling, hailing rides, eating out, staying in hotels or going to cinemas. Of course, the hard-hit sectors are Aviation, Tourism and Hospitality.

Piggy has noted that African countries have taken a “copy-and-paste” approach on how they are instituting lockdowns. Developed nations like the USA, UK and much of Europe have the capacity to stomach shocks given the structure of their economies, level of reserves, state of health systems and social safety-nets. A country like Zimbabwe lacks the safety-nets to cushion citizens from economic-inactivity and would have to depend on donor support. There is just not enough fiscal space! In addition, the economy is largely informal. Revenues from a vegetable stall not bought or a foregone ride from an informal taxi are lost for ever.  It appears that some small businesses may never restart again. Some folks will have to re-locate to the country-side permanently!

“Copy and you die” (Jack Ma)

In its report entitled, “Shadow Economies around the World: What Did We Learn Over the Last 20 Years?”, the IMF ranks Zimbabwe as having the second largest informal economy as a percentage of its total economy in the world, after Bolivia. Out of which 158 economies that were studied, Zimbabwe has a score of 60.6%, second to Bolivia which topped at 62.3%. The shadow economy (known by different names such as the hidden or informal economy), includes all economic activities which are hidden from official authorities for monetary, regulatory, and institutional reasons.

Piggy highlights that the growth of the informal sector in Zimbabwe has largely been a result of the high levels of unemployment, with an estimated 5.0% of the addressable population with a salaried job.  Those without a salaried job typically engage in small businesses in order to generate a steady stream of income while those with salaried positions often have side businesses to supplement their monthly earnings. Some side businesses include hair-braiding or barbering, baking cakes, selling home-cooked meals, raising and selling chickens, pigs, or goats, selling home-care and cleaning products and homemade crafts. Other income sources include offering rides as an informal taxi, selling eggs or vegetables grown in a garden at home.

Lockdowns mean that most of the informal sector activity that sustains lives come to a halt thereby impacting negatively on household incomes. On another note, the fact that the Government of Zimbabwe is cash-strapped and may not be able to deal with the economic impacts of Covid-19 calls from private-sector players to step in. Corporate leaders, particularly of businesses that depend on numbers or the masses will have to increase their corporate social responsibility budgets. Piggy notes that corporate social responsibility (CSR) is in itself an internal corporate ethic strategy. CSR strategies encourage the company to make a positive impact to stakeholders including consumers, employees, investors and communities. CSR strategies must therefore align with and be integrated into a business model so as to yield benefits in the long term.

Consumer-facing companies like Brewers, Banks, FMCGs, Telecoms and Fintech operations require numbers to scale-up their businesses. Scalability describes a company’s ability to grow without being hampered by its structure or available resources when faced with increased demand. The idea of scalability is closely related to economies of scale, wherein companies are able to reduce their production costs and increase profitability as they grow larger and produce more. An increase in the number of deaths and Covid-19 infections implies less demand for booze, airtime, food stuffs and banking services. That should be enough reason for Delta, Econet, Cassava, Innscor Africa, BAT Zimbabwe amongst many others to play an active role in combatting the spread of Covid-19 in Zimbabwe!

Meanwhile, the Ministry of Finance and Economic Development issued a press statement on fiscal mitigatory measures to contain the impact of Covid-19.  As part of the measures, National Treasury will avail ZWL$500m to fight against the disease and also allocated ZWL$50m to the Premier Service Medical Aid Society (PSMAS) to cater for the health requirements of civil servants who are the majority members of the Society. Interestingly, the statement highlights the role of development partners in terms of providing humanitarian assistance. These include the United Kingdom Government, the Global fund (which has pledged USD25m), the USA Government and the European Union. The big question would then be, “If someone tried a Look East Policy some time back, why not just adopt a Look West policy?”

Learn more about investing by joining a piggybankadvisor.com WhatsApp based group today. Contact the Administrator on +263 78 358 4745

piggybankadvisor.com is an educational platform that empowers individuals, households and small businesses through educational and insightful articles and blogs. Topics covered include economics, stocks, budgeting, retirement & risk planning, wealth management tips and financial product reviews.

Visit Piggy’s Art & Collectibles platform and BUY art pieces from various artists in Zimbabwe and the rest of Africa. Here is the link; https://piggybankadvisor.com/shop

Listen to our daily podcast: What is Piggy Saying?

What is Piggy Saying? – An insights and analysis show that covers Economics and the Stock Market in Zimbabwe.

Previous The House of Cards
Next Piggy Talk on bargain hunting on the ZSE

No Comment

Leave a reply

Your email address will not be published. Required fields are marked *