Leveraging identification to extend social insurance to the informal sector

Providing pensions and other forms of social insurance to people requires keeping track of large numbers of individuals over long periods of time. There is little margin for error. Allocating contributions of one individual to the pension of another not only affects individual fates. It also risks undermining the trust in the entire system and without trust social insurance cannot work.

In the formal economy with contractual employer-employee relationships, the identification of an individual over a long period can (at least partially) be outsourced to the employer. Afterall, an employer should be able to confirm her employee’s identity. Informal sector workers, who work in 89.2% of all jobs in Sub-Saharan Africa, however, cannot rely on their employers to take on this role. They tend to lack defined employment relationships, frequently change employer, are self-employed, or tend to be highly mobile.

Extending social insurance to the informal sector therefore critically depends on the social insurance system’s ability to identify individuals without relying on an employer to do so. Existing identification systems such as national IDs become crucial. However, coverage of existing ID systems remains spotty, particularly in Sub-Saharan Africa where almost a third of the population aged 15 and above does not possess any form of ID (Figure 1).

Figure 1 : Coverage of IDs, by Region

Coverage tends to be significantly lower among vulnerable groups. This is in part due to the fact that the population in many cases has to purchase identity credentials at costs that are prohibitive for many. High transaction costs, for example from displacements to issuing authorities or the costs of required documents, further constrain access. Those living in rural areas, women, and individuals with lower levels of education tend to be those with the lowest likelihood of possessing an identity credential. Coincidentally, these attributes are also closely correlated with informality. Lower educational attainment tends to be associated with higher levels of informality. In West Africa, informal employment furthermore tends to be significantly higher in rural areas and higher among women than men. This relationship between low ID coverage and high levels of informality appears to hold at the national level as well as Figure 2 shows.

Figure 2 : Informality and Identification

Employment outside the formal sector (% of employment)

Source: Calculations based on data of ID4D (Identification for Development) dashboard, World Bank, Washington, DC; 2020 data of ILOSTAT dashboard, International Labour Organization, Geneva

Given the weaknesses of identification systems and the exclusion of large proportions of the population, particularly vulnerable groups and often equally vulnerable informal sector workers, extending social insurance to the informal sector is currently critically constrained. To enable informal sector workers to save for retirement, bridge periods of unemployment and to sustain savings despite the inability to work altogether, investments in identification systems will be crucial. Extending social insurance to the informal sector therefore adds yet another reason to the many existing ones for strengthening ID systems in Africa and around the world.

Due to the importance of identification for service provision to the poor and vulnerable such as the millions of informal sector workers in Africa, the World Bank is increasingly investing in countries’ ID systems. The West Africa Unique Identification for Regional Integration and Inclusion program, for example, aims to provide unique identification to everyone physically in the territories of Benin, Burkina Faso, Côte d’Ivoire, Guinea, Niger, and Togo to improve access to wide variety of services. The World Bank thereby contributes to Sustainable Development Goal 16.9 of providing legal identity for all and aligns with regional and continental initiatives, for example in the context of the African Continental Free Trade Agreement.

This blog post is the third in a series focused on the different chapters of the report, "Social Protection for the Informal Economy: Operational Lessons for Developing Countries in Africa and Beyond."