Bottom-up solutions for early socio-economic recovery in informal economies after COVID-19

Bottom-up solutions for early socio-economic recovery in informal economies after COVID-19

Matías Acosta and Matías Nestore

The far-reaching economic impact of the COVID-19 crisis has been highlighted in the past few weeks. The International Labour Organization (ILO) estimates that the increase in global unemployment could reach 13 million people. Among those economically affected by the current crisis, informal and day-labourers will be the most deeply affected, owing to the lockdown measures and travel bans that do not allow the mobility necessary to carry out their jobs. This situation has led to informal workers demanding increased support in areas ranging from income and employment security to healthcare and rent relief.

The COVID-19 outbreak will hit low-income neighbourhoods hardest, as reported by the ILO. Moreover, the economic consequences of the lockdown measures could hamper the functioning of entire informal economic systems (Dev and Segupta, 2020). This could lead to the crumbling of entire livelihoods for those depending on informal employment opportunities, not just during the lockdown phase but also through the period that will follow the current crisis. Given that developing countries lack the financial resources to provide massive economic support of the informal sectors, it becomes essential to focus on innovative bottom-up approaches that could aid the development of informal economies. Indeed, such solutions are required to sustain urban dwellers’ livelihoods, and could pave the way towards the inclusion of informal workers in our economic systems.

The crisis calls for governments, policymakers, and businesses to re-think the ways in which our economies function. Innovative practices can be developed across sectors, ranging from local government innovation to social cooperatives and enterprises. This opens up questions about the ways in which workers at the bottom of industrial supply chains can exchange goods to become more resilient during the current economic crisis. In light of this, the need to enhance the connectivity of slum dwellers to economic opportunities and to include them financially in the formal economy become fundamental. Besides, increasing the availability of data from slums to inform decision-makers and future planning also becomes of critical importance. This is particularly relevant in the current times of unpredictability and rapid societal changes. Here we provide critical comments on key bottom-up innovation across sectors that could help build a fast socio-economic recovery after COVID-19.

Igniting informal economies through local markets and exchanges
One of the crucial issues faced by informal workers is the lack of connectivity to the opportunities of the wider urban economy. Informal enterprises and labourers rely primarily on personal communication and social relationships to drive production (Kaya et al., 2011) and  access market opportunities. This leads to a reliance on middlemen, those who control the bridge between the market’s need for cheap labour and workers in informal conditions. As highlighted by the Rockefeller Foundation (2013), information about potential suppliers, buyers, and sellers is mainly held by middlemen, who earn up to 60% of workers’ potential salaries. Industrial outworkers make up a considerable portion of slum workers, making the loss in industrial productivity due to the COVID-19 crisis a dangerous threat. With less money entering the slums from the wider economy, a chain reaction would be triggered, hampering the development and sustenance of slums’ internal markets. The providers of slum services such as hairdressers, food vendors, and others would see a decrease in their profits, with women and youth being among the most affected due to their economic reliance on internal slum markets (Wilkinson, 2020)..

Following the lockdown, consistent measures will need to be put in place by policy makers in order to address the main issues faced by slum dwellers, including lack of access to employment opportunities, lack of social protection, and economic fragility. In order to address them, targeting the social and economic isolation faced by those living in informal settlements is fundamental.

To this end, interventions focused on enhancing the connectivity of slums with  wider urban economies are central, as segregation is one of the key determinants in concentrated urban poverty and perpetuation of disadvantage (Massey, 2016). The creation and development of community-led and digitally enhanced slum markets can be a potential opportunity for economic development and innovation, both in terms of governance and policy.

An example of this strategy can be seen at Villa 31, in Buenos Aires, Argentina. The government has provided support and training of informal workers so that they can commercialize homemade food and provide an array of services. In order to provide a means that enables flow of cash in Villa 31, the Argentinian government provided an online platform from which any person can purchase products and services online.

Similarly, Sharetribe is a tool through which digitally connected marketplaces can be created. A number of Sharetribe platforms have been created to buy and sell products and services during the COVID-19 crisis, but they also offer an opportunity to enhance slum dwellers’ connectivity and inclusion, allowing local markets to grow in the long term. Moreover, this could help bypass middlemen, allowing the profits of slum workers to grow and connect to wider urban economies in more sustainable ways.

Driving economic resilience through financial inclusion and formalization
Digital direct payment mechanisms from government to people have already been put in place in a number of countries. Yet, in order to build more resilient urban economies, there is a need to go beyond G2P (government-to-person) payments and foster economic inclusion and formalisation. Initiatives aimed at enhancing the inclusion of informal workers to the wider urban economy could considerably help in building more resilient links between slum economies and wider urban economies. This can, however, seem like an unattainable task. First, given the relative isolation faced by slum dwellers, both due to poor links to wider society and to the negative stigma often placed upon them, they often lack significant access to employment opportunities. An example of this kind of practice was developed by the Indian social enterprise LabourNet, aimed at creating linkages and facilitating employment in the informal sector.

Moreover, there is a need to devise strategies for direct payment in order to bypass workers’ reliance on middlemen for receiving their salaries. Direct cash-transfer through financial technology developed by companies such as M-Pesa and Dodore play a key role in this process. Moreover, capacity-building and financial education are fundamental to financial inclusion. An exemplary case is the direct cash-transfer tool called Agri-Wallet developed by Dodore in Kenya. This is because the solution works as a downward payment strategy that can be used in supply and value chains between employers and workers, without the interference of other actors. Workers using Agri-Wallet have been trained to do so through modules developed by the e-learning company 21CC Education, a type of partnership that could be replicated elsewhere and applied to a diversity of urban contexts and industries.

This allows for capacity building and financial education to develop hand in hand with financial inclusion. Indeed, the capacity-building of workers will be central to the development and resilience of informal economies during COVID-19 crisis. This can be achieved through harnessing the potential of novel e-learning platforms, as well as close collaborations between employers, fintech companies, and providers of e-learning solutions.

Bottom-up data collection and sharing for government innovation
The Slum Dwellers International (SDI) – a network of community-based initiatives in cities and towns across Latin America, Africa, and Asia – is at the forefront of bottom-up data creation, a potential strategy for enhancing communication between slum dwellers and city government. Know your City is a global campaign carried out by SDI in collaboration with United Cities and Local Governments of Africa and Cities Alliance. Its goal is to foster community-driven change through data and knowledge produced by the communities themselves. This is done by promoting collaboration between the communities and local policymakers.

A similar initiative, the Urban Resource Centre in Karachi (Pakistan), is an open-source information base for researchers, entrepreneurs, and policymakers to gather data created by communities themselves. With the community-collected data in hand, representatives of informal settlements can take part in meetings with key stakeholders and drive change by prioritising the communities’ needs and concerns. Examples of this practice can be found in the collaboration between the SDI and the 100 Resilient Cities project, through which representatives of informal communities in Accra and Cape Town have taken part in stakeholder working groups to influence policy and urban resilience strategies.

Initiatives of this kind should be taken into account when devising interventions to address socio-economic hardship, both by government officials and by social entrepreneurs. Indeed, information and data bases of this sort can help drive purpose-driven innovation and social change, keeping the interests of communities as a priority. To this end, open-source software like the one produced and distributed by the Open Data Kit community can become fundamental to interventions aimed at developing economic resilience in informal settings, complementing data provided by government authorities. The main advantage of the Open Data Kit software is that it can be used for offline data collection and management, allowing it to be used for interventions involving communities in which access to internet might not be a given (Brunette et al., 2017).

Interventions in informal economies need the coordinated efforts of government institutions, civil society, and the private sector to build fast recovery pathways for the COVID-19 economic crisis. Informal workers’ organisations, with direct links to communities and deep understanding of their needs, will be key interlocutors in debates about how to restructure urban policy and economic interventions. It is through multi-actor responses that innovation can be achieved in order to drive policy-making and the formalisation of workers, and favour economic resilience in slums. As actors move forward in planning and implementing actions to tackle the economic hardship faced by those working in informal economies, it is essential to take into account the potential of community-based data, financial technology, and e-learning tools, for the development of more equitable interventions and resilient urban economies.

Mahendra Dev, S., Sengupta, R. (2020). Covid-19: Impact on the Indian economy. Indira Gandhi Institute of Development Research. Mumbai Working Papers 2020-013, Indira Gandhi Institute of Development Research.
Massey, D., (2016). Segregation and the Perpetuation of Disadvantage in The Oxford Handbook of the Social Science of Poverty. Brady, D., and Burton, L. (eds.). Oxford University Press.
Kaya, C. and Yagiz, B. (2011). Design in Informal Economies: Craft Neighborhoods in Istanbul. Design Issues, Vol.27, No. 2, pp. 59-71.
Rockefeller Foundation (2013). Constrained Opportunities in Slum Economies.
Wilkinson, A. (2020). Key considerations: COVID-19 in Informal Urban Settlements. Social Science in Humanitarian Action Platform.


Matías Acosta is the Head of Exploration of the United Nations Development Programme Accelerator Lab based in Buenos Aires, Argentina. He is also a fellow at the Centre for Science & Policy at the University of Cambridge. Matias is also a consultant for major corporations as well as the founder and executive director of Shaping Horizons, an organization that promotes social innovation & diplomacy. He also has vast experience in materials/devices for the 4th industrial revolution like sensors for IoT and fuel cells to transform hydrogen to clean electricity. Matías Nestore is a young researcher, working in the sociology of education, sustainability, and territorial inequalities. His experience and work combine research in urban and rural realities, both in the UK and Italy.  He holds an MPhil in Education, Globalisation and International Development from the University of Cambridge and is currently working in education research, and cooperation and sustainability in the Mediterranean region. 

Image: Leonora Enking