Coronavirus: Informal workforce inhibits response in some FM-EM

  • Social distancing includes a shift to shuttering firms or working from home, creating pressure for fiscal relief
  • In FM and EM, the reliance on informal labour risks a more widespread backlash (non-conformity) to this policy
  • Informal labour is another FM-EM versus DM difference: denser population, poorer healthcare, weaker law and order too

Reliance on informal labour in frontier and emerging markets

The high incidence of informal labour* in most emerging markets likely creates an obstacle to the implementation of social distancing policy in response to the coronavirus. Working from home is often not an option in the informal sector (the opposite description of what has come to be known as the "gig economy" in developed markets, where working from home, or at least outside a traditional, formal office setting, is the norm). 

This compounds the economic disruption from social distancing and may create reticence on the part of policy-makers to implement complete social isolation policies (as seen in Pakistan or India currently, where there is debate as to whether the starvation that might result from complete social distancing may outweigh the deaths caused by coronavirus). 

Reliance on un-taxed informal workers also reduces the fiscal space (low tax base) from which to finance public spending stimulus (or indeed the mechanism through which to implement this, ie there is no point in granting tax relief to a labour force which does not pay tax in the first place).

The GCC (particularly, the rich city-states of Abu Dhabi, Kuwait and Qatar), with its reliance on documented, expatriate labour is an exception. Its deep sovereign wealth is an exception as well in this context.

Another reason why there is likely no coronavirus island of immunity in FM-EM

Most emerging and frontier countries face multiple challenges in dealing with coronavirus in the manner which, for example, China, with its ability to quickly enforce draconian social isolation, or South Korea, with a combination of widespread testing and (belated) social isolation, appear to have done. It remains to be seen whether we have seen the last of critical infection spikes, or, indeed, how reliable is the data released on infections (eg China new infections have barely changed for the last 3 weeks). These challenges are almost universal and make it wishful thinking to imagine that particular countries (or, entire continents, like Africa) may be relatively immune from coronavirus-related disruption. 

These challenges include the following:

  • Treatment: Low level of public healthcare provision, delayed coronavirus infection may put FM and EM countries further back in the queue for imported drugs and equipment; 
  • PreventionVery high urban population density, higher occupants per house, absence of social welfare safety nets, existing fragility of the rule of law (or competing sovereignty between federal and provincial authorities);
  • Economic mitigation: Tourism and external trade links, little policy room (in terms of balancing fiscal balance, inflation, and FX stability); and 
  • Geopolitical obstacles: eg Iran, Libya, North Korea, Syria, Venezuela, Yemen face diplomatic, financial and trade isolation or chronic insecurity compounds the factors listed above for both these countries and their regional neighbours.

These challenges and others (such as a generally older demographic bias) also exist in developed markets but financial resources, welfare state safety nets, healthcare infrastructure, better rule of law, greater levels of education, may mitigate them, all other things equal (eg early imposition of social distancing).

* Informal labour is defined by the ILO as paid workers that are "not registered, regulated or protected by existing legal or regulatory frameworks...informal workers do not have secure employment contracts, workers' benefits, social protection or workers' representation".


Most Viewed See latest
Disclosures

This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...

Full Tellimer disclaimers