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The promise of digitising cash transfers in sub-Saharan Africa during COVID-19 and beyond

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The promise of digitising cash transfers in sub-Saharan Africa during COVID-19 and beyond

Neil Decenteceo

05 Aug 2020

3min min read
  • Emigrant remittances
  • Epidemics--Economic aspects
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his year, the coronavirus pandemic has forced governments to grapple with difficult questions regarding lockdowns, contact tracing and the provision of emergency financial assistance to citizens now without work. In developing countries, these hardships are magnified with the World Bank estimating that remittances – money transfers sent from foreign workers to their home countries – to low and middle-income countries (LMICs) are projected to fall by 19.7 percent (from $554 billion in 2019 to $445 billion in 2020). Considering the significant role that remittances play in alleviating poverty and improving nutrition, many governments have turned to mobile cash transfers for vulnerable citizens to use while minimising COVID-19 exposure.

However, as the Center for Global Development explains, in order for these government transfers to be successful, citizens should have legal identification, a financial account, and a mobile phone for accessing information and funds. About half (500 million) of the one billion individuals living without legal identification are living in sub-Saharan Africa. This region received nearly $48 billion in remittances in 2019 – significantly higher than the $32 billion received in foreign direct investment and almost as much as the $50 billion received in official development assistance.

As remittances decrease, mobile cash transfers have become even more critical. The effectiveness of COVID-19 social relief programs across the region varies, yet one thing is clear: governments in sub-Saharan Africa need to incorporate digital solutions. Aside from the fact that digitisation has multiple applications (e.g. business registration, voting, healthcare), its use in cash transfers alone has the potential to meet a significant portion of the immediate demand for relief and strengthen regional resilience for future economic shocks.

Facilitating mobile cash transfers in the short term

As the coronavirus continues to disrupt the livelihoods of citizens, especially those working in the informal economy and without legal identification, developing countries in sub-Saharan Africa should continue to identify potential beneficiaries, add them to a centralised government database, and distribute relief funds through mobile cash transfers for those with accounts. As the International Monetary Fund (IMF) notes, various data sources may be used to identify prospective beneficiaries, ranging from government databases of poverty reduction programs to NGO databases on informal economy workers, and even local authorities (e.g., village chiefs in Côte d’Ivoire).

"Ultimately, through digitisation, governments in sub-Saharan Africa can improve their emergency relief systems to save more lives in the current crisis and prepare themselves for the next major shock, whether it be a deadly virus, weather-related disaster or violent conflict."

Countries with greater prior use of mobile money, like Kenya and Uganda in East Africa, may more easily distribute relief funds. However, due to the pandemic, citizens in both East and West Africa have a new incentive to set up a mobile money account, especially in light of mobile money services lowering cost barriers and simplifying sign-up. Even before the pandemic, West African countries saw the highest percentage increase in mobile money accounts in sub-Saharan Africa in 2019. This year, as more citizens in the region attain mobile money accounts, even in some of the poorest urban neighborhoods, governments would be wise to seize the opportunity to shift to digital cash transfers.

Digitisation beyond COVID-19

In the short term, focusing on digitisation may develop a sufficiently functional mobile cash transfer system that is accessible to some portion of a population in need. However, in the long term, what is perhaps more impactful is that this focus will pave the way for better, more versatile technology and a digital system that could ensure any citizen can quickly access relief funds. To accomplish this, sub-Saharan African governments and their international partners should consider investing in mobile network and digital ID infrastructure, smart digital policy and digital education.

Strengthening infrastructure and enacting smart digital policy

First, infrastructural improvements could manifest as partnerships with private companies aimed at building more network towers or biometric technology, like fingerprint or facial recognition hardware, which could match a citizen’s biometric information with a unique ID number (e.g., India). In addition, smart digital policy could include regulations that allow for mobile providers to compete and increase customer access to affordable phones or cybersecurity laws that protect citizens’ privacy and other related rights. Such policies are critical to bridging the digital divide between Africa and the rest of the world and building public trust in digital systems.

Increasing digital education

Finally, digital education investments could manifest as e-education services (e.g., Kenya) or general core education curriculums tailored with basic digital skill-building in mind (e.g., Rwanda). Together, these investments can create a strong digital system that is accessible, trusted and understood by most citizens. Undoubtedly, such a robust system would require time and money, but its useful applications beyond optimised emergency cash transfers can make it a more compelling prospect to government officials.

Rising to the occasion through digitisation

Ultimately, through digitisation, governments in sub-Saharan Africa can improve their emergency relief systems to save more lives in the current crisis and prepare themselves for the next major shock, whether it be a deadly virus, weather-related disaster or violent conflict. Long-term economic development cannot be achieved for the most vulnerable without helping them meet their most basic needs in a crisis. Digitisation, although not a cure-all, offers a critical piece to meeting those needs.

(Main image: Azariah Kararu/Getty Images)

The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.