Background Paper N°4 - GEPR working paper series

The Transition from the Informal to the Formal Economy in Africa

Background paper for the GEPR Chapter 5 “The transition to formality: Comparing policy approaches in Africa, Asia and Latin America”.

Eight out of ten workers in Africa are in informal employment, the highest share among all regions. Given the severe decent work deficits associated with the informal economy and the negative impact on inclusive and sustainable development, the transition to formality has occupied an important space on the policy agenda in Africa. While there is an increasing trend of informal employment in the region, some countries were able to reduce the share of informal employment in a given short period. The experiences of these countries indicate that formal employment growth with strong economic growth was the main engine by institutional policies promoting formalization. The type of institutional policies applied is diverse with some focussing on formulating specific strategies for enterprise formalization and improving regulatory environment. Others initiate the formalization process through extending social protection to informal workers or implementing specific programmes for promoting youth employment and their transition to formality. Even though not all policies implemented in countries with formalization episodes have been evaluated, some impact evaluations on formalization policies took place in Africa and prove to be effective for facilitating transition to formality. Given the current situation, high informality will remain a challenge to Africa in the near future, exacerbated by the dwindling ability of formal employment generation to absorb the increasing youth population in Africa. The youth population in Africa is projected to increase by 105 million people by 2030, 94 million of whom will live in the sub-Saharan subcontinent. This paper may not provide solutions to all but a revisit of those successful formalization episodes may provide some ideas for transition to formality in the new context of R204 - Transition from the Informal to the Formal Economy Recommendation, 2015, and 2030 Agenda for Sustainable Development Agenda.