Launch Presentation. The informal economy in Africa is large and diverse, and it is the main source of employment in the region. It is projected to grow and create more jobs. The informal economy is well established in the region, but it also faces a host of development challenges. It is characterized by low human capital and productivity compared with the formal economy and is typically associated with limited access to resources such as electricity, finance, land, and public services. People who work in the informal economy are usually more susceptible to short-term shocks and the more catastrophic consequences of idiosyncratic shocks (acute short-term crises, such as illness) and covariate shocks (chronic or widespread shocks affecting entire communities). These vulnerabilities are exacerbated because these people ordinarily have limited avenues to formal financial institutions or risk mitigation instruments. Women are more likely to work in the informal economy in Africa and are therefore also more likely to experience precarious work environments. The COVID-19 pandemic highlighted the vulnerabilities of the vast informal economy, especially in urban areas. Social protection cash transfers provided an essential platform for delivering assistance in response to the COVID-19 shock in the Africa region. In addition to macroeconomic measures to support economic recovery, governments needed to limit the damage to livelihoods, especially in the informal economy. Many governments in the region added to their capacity to extend coverage with innovations in targeting and delivering payments by leveraging technology and using big data. In many cases, registration was carried out using mobile technology. Some governments opted to implement more direct registration processes by creating dedicated websites or relying on informal economy associations. These swift responses were success stories in their own right, but they were undertaken essentially as a response to an urgent requirement to provide much-needed support to groups that lacked social protection and to prevent them from slipping into poverty. Governments allocated significant resources, typically through external financing (US6.1 billion dollars in additional spending in 30 countries across Africa).

1. Operational Lessons for Developing Countries in Africa and Beyond
Social Protection for
the Informal Economy
Melis Guven, Himanshi Jain, Clement Joubertwith contributions from Julian Koschorke, Mark Davis,
and Jonathan Karver
November 17, 2021
1

2. 2
Melis Guven
Social Protection & Jobs
Global Practice
Himanshi Jain,
Social Protection & Jobs
Global Practice
Julian Koschorke
Social Protection & Jobs
Global Practice
Nirali Desai
Social Protection & Jobs
Global Practice
Clement Joubert
DEC-Research Group
Richard Mark Davis
Finance,
Competitiveness, and
Innovation Global
Practice
Eric Gires
World Bank Treasury
Pension Department
Jonathan Karver
Poverty and Equity Global
Practice (Embed team,
EPVGE
Vaibhav Chandra
Social Protection & Jobs
Global Practice
Ana Maria Munoz Boudet
Poverty and Equity Global
Practice (Embed team,
EPVGE)
Social Protection for the Informal Economy
Jaclyn Lefkowitz
Poverty and Equity Global
Practice (Embed team,
EPVGE)
Hugues Champeaux
DEC-Research Group

3. Informal economy in Africa is large and diverse, and it is the main source
of employment
Output informality, selected Sub-Saharan Africa countries
1990–2018
World Bank.
Informal sector employment rate for Africa, 2014–2019
 Self-employment is a predominant characteristic
 Informal employment is more common among
women
 Informality is characterized by low human capital, low
productivity, limited access to basic services, limited
financial inclusion, low earnings, and irregular,
unpredictable incomes, susceptibility to shocks
%
of
total
employment
3
Source:2018 data of ILOSTAT (dashboard), International Labour Organization, Geneva, https://ilostat.ilo.org/.
0
10
20
30
40
50
60
70
80
90
100
 Most jobs are informal (89.2% of total employment)
 Informal output in Africa is largest in the world (38.0%
of GDP) but there is heterogeneity across the region
 Challenges in informality will likely increase with
Africa’s population projected to double by 2050;
most jobs expected to be created in the informal
economy

4. Despite these vulnerabilities, informal economy workers are not typically
covered by social protection programs
T
Botswana
Congo, Dem. Rep.
Eswatini
Ethiopia
Ghana
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritania
Mauritius
Namibia
Nigeria
Senegal
Sierra Leone
South Africa
Tanzania
Uganda Zambia
Zimbabwe
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
Social safety net coverage and the poverty headcount ratio
Data of ASPIRE (Atlas of Social Protection Indicators of Resilience and Equity) (dashboard), World Bank, Washington, DC,
0
10
20
30
40
50
60
70
80
Social insurance coverage as % of working-age population, ages 15–59
Source: Data of Pensions: Data (dashboard), World Bank
 Most countries in the region have social
safety net programs, but the coverage is low
 Most programs focus on the extreme poor
in rural areas. They are small in scale with
limited to no urban penetration
 Coverage of existing social insurance
programs is limited to the small formal
economy in the region
 An average of only 10.9 percent of the
working-age population participates in
contributory social insurance programs
4

5. COVID-19 pandemic highlighted the vulnerabilities of the vast informal
economy, especially in urban areas
Source:Lakner et al. 2021.
416.4
426.8
430.8 433.4
439.8
440.9 441.8
472.9
483.9
410
420
430
440
450
460
470
480
490
500
2015 2016 2017 2018 2019 2020 2021
Historical Pre-COVID-19 Projection
COVID-19-baseline Projection COVID-19-downside Projection
Projected impact of COVID-19 on extreme poverty in Africa 2015–21
 Urban informal economy has been hit by
losses in incomes and livelihoods caused by
containment and mitigation measures
 COVID-19 high-frequency phone survey
conducted by the World Bank typically found
a steep reduction in self-reported labor
income because of COVID-19
 Pandemic is expected to reverse the gains in
poverty: additional 33 million and 11 million
poor in 2020 and 2021 respectively
 Social protection cash transfers provided an
essential platform for delivery of emergency
assistance in response to the pandemic
490.7
5

6. African countries should continue to invest in building safety net systems and
developing robust social protection delivery systems including social registries
and G2P payment systems
Social registry coverage, by region
 Coverage of social registries and ID systems is still low in
the Africa region
 Countries with relatively high coverage of social registries
could respond to the pandemic crisis better
 African countries should continue to invest in building
safety net systems and developing robust social
protection delivery systems including social registries and
payment systems (G2P payments)
 Social protection systems must rely on a country’s
existing ID systems to ensure the unique identification of
beneficiaries
 Integrated, dynamic social registries are critical for
adaptive, shock responsive social protection 3.21% 3.44%
5.34%
%
6.81 6.91%
%
30.61
0
5
10
15
20
25
30
35
EAP ECA LAC SAR
Region
MENA SSA
Share of Population without IDs by region
6

7. Understanding the characteristics of the informal economy households is
necessary in devising suitable SP interventions
Source:World Bank elaboration.
Poor (P)
HOUSEHOLD
TYPE
“The missed middle” in Social Protection
Non-poor informal (NPI) Formal (NPF)
Categorization of Informal Households
 The “missed middle” of social protection (NPI) is
largely the group between Poor(P) and Formal (NPF)
 Not sufficiently poor to be eligible for safety net programs
but lack the protection people in the formal economy receive
through social insurance
2015 LivingConditionsMonitoringSurvey(Zambia),2018 EnquêteHarmoniséesur les Conditionsde Vie des Ménages
(Benin,Togo),2015 KenyaIntegratedHouseholdBudgetSurvey,2016 UgandaNationalPanelSurvey.
31.8 44.4
49.6 52.5
53.7
73.6
55.3
0
20
40
60
80
100
Zambia
Poor Non-poorInformal Non-poorFormal
Togo Rwanda Kenya Benin Uganda Pooled sample
Size of the poor, the “missed middle”, and formal in six countries
 On average, more than half of the households in
six countries falls under the NPI category
 Near absence of an administrative relationship
between NPI households and governments has
considerably slowed the delivery of relief in
response to the pandemic
 Social protection needs of NPI households are
coming into focus as the magnitude and impacts
of shocks become clearer
7

8. A significant share of non-poor informal (NPI) households is resilient
to shocks and is likely to have ability to save
 The ‘missed middle’ can be further
split into non-resilient and resilient
based on their ability to cope with
shocks.
 The non-resilient ‘missed middle’
households show signs of liquidity
constraints, are vulnerable to shocks,
and only have precautionary savings
 The resilient ‘missed middle’
households can weather shocks and
have ability to save long-term
8
Note: pooled sample in the six countries analyzed

9. A suite of social protection, economic inclusion programs and
productivity enhancing measures are needed to provide a continuum
of coverage across the income spectrum
Social protection instruments across the income spectrum
Source: Guven and Karlen 2020.
9

10. Low-income countries have limited resources to finance universal social protection
 Universal protection should be the
ultimate objective for countries
 But developing countries have limited fiscal
resources to finance universal basic social
insurance
 A progressive approach can be adopted
by these countries
 By laying the foundations of a social insurance
scheme for the informal sector
 A first step could be voluntary savings
scheme to informal economy workers to
access services and allow them to save
 Subsidies and incentives may be needed to reach
scale, but they are likely to be affordable for most
countries
 Scheme needs to be designed to meet needs of
informal sector workers and not rely on a formal
employer-employee relationship
 Such a scheme could potentially be
scaled up to be mandatory and
universal when the enabling conditions
allow
10
Tax Revenue as % of GDP, by region (2000-2017)
Source: IMF (2020). Government Finance Statistics Yearbook and data files, and World Bank and OECD GDP estimates

11. To ensure continuum at the operational level, informal sector social insurance
delivery digital platforms needs to be interoperable with social registries, ID
systems and payment systems
Informal economy: integrated social insurance platform
11

12. Design of informal economy social insurance scheme should reflect the
characteristics of the informal economy
Addressing the constraints in the informal economy
12

13. Incentives and nudges will be needed to reach scale
 It is critical for these schemes to reach scale to be viable as the average saving by informal
workers is expected to be low.
 Incentives and nudges to reach scale could include
• Short term access to savings help build trust, and short-term access help in time of shocks
• Matching contribution for non-resilient non-poor informal sector
• Customized incentives for specific groups (e.g. women)
• Incentives that provide immediate or near-term gratification for e.g. funeral insurance,
lottery
• Focus on awareness building activities by engaging with community leaders and grassroots
organizations
 Eligibility for matching contributions can determined by assessment through social registry
 Interoperability between social insurance platform and social registry would help expand
social registries, and also help keep them to be dynamic (spillover effects of integration)
13

14. Behavioral nudges could be employed to encourage participation in the social
insurance scheme for the informal economy
Challenges a worker in the informal economy
faces at the:
 Decision stage: confronting limited attention
and complexity of information
 Enrollment stage: overcoming information
overload and the tendency to procrastinate
 Contribution stage: overcoming a tendency to
what has been done before in terms of savings
 Technology makes deploying behavioral nudges easier and more cost–effective
Informal worker’s journey toward building resilience
14
Source: Karver et al., 2021
Decision
Enrollment
Repeat
contribution
Persistent
saving
habit
Learnabout
eligible
instruments
Forming an
intention
Decide on
instrument
Identify
sourcesof
information
Find out
how/where
to enroll
Access &
complete
paperwork
Submit
paperwork
Get
approved
Evaluate
amount
options
Commit to
amount
Contribution
Establish
consistent
contribution
Make first
contribution

15. Robust and reliable unique identification is critical to administering
Informal sector social insurance schemes
Social insurance administration
Informality and identification
Employment outside the formal sector (% of employment)
Source: Calculations based on data of ID4D (Identification For Development) (dashboard),
 Investments in robust identification systems will be
needed to make schemes for the informal economy
viable, efficient, and to build trust in the system
 Unique identification is a critical foundational
block of the scheme, especially because the
target group lacks the formal employer-
employee relationship
15

16. Robust institutional arrangements are key to building trust and to ensure
smooth functioning of business processes
 Communication with scheme participants through the various stages of contribution collection,
Investment credited, balance update and payment process, is critical .
16

17. Informal sector social insurance schemes should design the
most appropriate investment approach that enables real return to
participants over time
 The recommended investment approach for informal economy schemes is strongly linked to
the quality of the governance of the scheme
 Dynamic approach to investment adopted in Ghana has led to real returns as high as 8 %
Investment vehicle choices depending on governance capacity
17

18. Assessing the financial viability of the informal economy social insurance
scheme is highly recommended
 World Bank SPJ Global Practice in collaboration with
World Bank Treasury Pension Department developed
the Scheme Viability Assessment Tool (SVAT) to
project the viability of informal sector schemes.
 Governments designing these schemes at national
level should carry out a feasibility study, followed by a
pilot test prior to scale up.
Output from SVAT showing total contributors, 1,000s Output from SVAT showing assets under management
. Output from SVAT showing net costs over time (the first 15 years)
Output from SVAT showing net costs over time (the first 15 years)
18
-
200
400
600
800
1,000
1,200
1,400
1,600
Count
of
Contributors,
000s
Total Males Females
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Assets
Under
Management,
000s
Males Females Total
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Net
costs,
000s
Net costs, in 1000s

19. Conclusions : Ten Takeaways
1. Developing countries have a large share of the informal economy without social protection (the
missed middle) but many have ability to save
2. Efforts to integrate social insurance and social assistance through digital platforms can have
positive spillover effects
a. Facilitating graduation of beneficiaries
b. Creating of shock responsive systems with a readily available database on the informal
economy
c. Increasing financial inclusion among informal economy workers and instilling a culture of
savings
3. Employing digital systems especially mobile money can reduce operating costs and make saving
more accessible
4. Trust in the scheme is key to take-up
5. Incentives and bundling of services can boost take-up rates
6. Scale and cost effectiveness is critical for a scheme to be viable
7. Investing in communication strategies, using aggregators and testing behavioral nudges are
essential for success
8. Keeping the design of the scheme simple should be one of the key considerations
9. Pilot testing the scheme before a national launch is recommended to reflect lessons learned to
national scale-up
10. Setting SMART (specific, measurable, achievable, realistic and timely) goals and reviewing them
on a regular basis is critical to monitor progress in the scheme and take necessary actions
19

20. Social Protection for
the Informal Economy
OPERATIONAL LESSONS FOR DEVELOPING
COUNTRIES IN AFRICA AND BEYOND
Please cite the work as follows: Guven, Melis, Himanshi Jain, and Clement Joubert. 2021. Social
Protection for the Informal Economy: Operational Lessons for Developing Countries in Africa and
Beyond. World Bank
20