New tool developed for assessing impact of policies on reducing informality in MENA

Baghdad, IRAQ (ILO News) – The International Labour Organization (ILO), the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP) have launched a new tool for assessing the impact of economic and social policies on the formalisation of jobs and businesses in the MENA.

The new Policy Assessment Framework is part of a new in report titled Informality and Structural Transformation in Egypt, Iraq, and Jordan: A Framework for Assessing Policy Responses in the MENA Region.

The Framework was developed through research and consultations with experts and policy makers in the MENA region and tested on policies and measures implemented by the governments of Egypt, Iraq, and Jordan during and after the COVID-19 pandemic.

“The Policy Assessment Framework jointly proposed by the OECD, ILO, and UNDP is a unique tool for identifying innovative strategies, analysing outstanding challenges, and setting priorities for formalization in the MENA region” said Peter Rademaker, Deputy Regional Director for Arab States at the ILO. He added, “It is especially important because of the high rates of informality in the region. The framework will help us reflect on good practices and lessons learned from formalization efforts in the region, as we get ready to celebrate the 10-year anniversary of the ILO Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204) ”

Despite progress in reducing informality in MENA economies over the past two decades, the phenomenon remains widespread. Accounting for over 58 per cent of employment and over 20 per cent of GDP, informality exposes MENA economies to long-term vulnerabilities which can be exacerbated during economic shocks such as the COVID-19 pandemic, the report stresses.

“This report identifies policy responses to informality in the MENA region, with a view to supporting sustainable and inclusive growth, the green and digital transitions, and more equitable work conditions and opportunities for men and women,” said Andreas Schaal, Director of OECD Global Relations, and the OECD Sherpa to the G7, the G20 and APEC. He added, “Multilateral cooperation and collaborative efforts between international organisations such as this report are not only key for tackling informality but are also critical to promote the overall 2030 Agenda.”

Informality refers to all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements. The report shows what a complex and multi-faceted phenomenon informality is, and how it includes a wide range of activities, transactions, and individuals, operating largely outside formal businesses but, to varying degrees, also within them.

“From street vendors to unregistered businesses and undeclared economic activities, informality is a significant, yet challenging aspect of economic activity in the MENA region,” stressed Marina Walter, Deputy Director of the Regional Bureau for Arab States in UNDP. She added, “Informality frequently serves as an important coping mechanism for poverty alleviation when the economy fails to generate sufficient formal jobs.”

The exploratory exercise in Egypt, Iraq, and Jordan pinpointed specific policy measures that were especially successful in increasing formality in these countries. These include making social insurance more affordable and accessible for all workers, applying active labour market policies in the form of training and wage subsidies to encourage employing particular groups such as women and youth, as well as facilitating business registration and access to inclusive financial services and ensuing more fair and consistent law enforcement that applies equally to all.

The Framework’s application is not, however, limited to the MENA region. It can also serve as a valuable tool for policymakers and researchers in other regions and contexts seeking to swiftly anticipate the impact of social and economic policies on formalization and to design effective measures to reduce informality in employment and businesses.