Leveraging digital technologies to boost productivity in the informal sector in Sub‐Saharan Africa

Abstract

AbstractIn many developed countries, automation has stoked fears of job losses by less‐skilled workers. In Sub‐Saharan Africa, by contrast, the adoption of low‐skill‐biased digital technologies complementary to informal workers offers the potential of a poverty‐reducing trajectory by enabling productivity and creating more job opportunities. While informality is pervasive in Sub‐Saharan African economies, building pathways to full formalization in the region has had limited success to date. Instead of focusing on formalization as an imperative policy goal, more realistic short to medium term policies should leverage low‐skill‐biased digital technologies to upgrade the skills of workers and enhance the productivity of firms in the informal sector. Moreover, more productive informal firms will likely seek to formalize if they perceive a positive tradeoff with the gains of being formal, arising from a conducive business environment mixing proper regulations, opportunities, and incentives. This paper summarizes what we know on digital technologies in Sub‐Saharan Africa, and highlights their role as catalysts for productivity enhancement, job creation, entrepreneurship, access to credit, and financial inclusion in the informal sector. It also documents key challenges faced by governments in harnessing the benefits and risks of digitization for the informal sector and suggests a blueprint to help policymakers in Sub‐Saharan Africa address them.