Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy

The policy brief examines the role of Digital Public Infrastructure (DPI)—comprising digital identity, payments, and data-sharing systems—in addressing the shadow economy in Africa, which is estimated by the IMF to represent roughly 35% of GDP (approximately $1–1.2 trillion). It distinguishes between the general informal economy and the 'shadow economy,' focusing on high-value transactions deliberately structured to evade taxes. The document highlights that cash transactions enable this opacity, while digitalisation can increase visibility and audit trails. Drawing on lessons from South Korea's Tax Incentive for Electronically Traceable Payments (TIETP) and India's 'India Stack' and demonetisation, the brief suggests that incentivising consumers to use digital payments is more effective than solely targeting sellers. It notes that while Uganda has used DPI to register over 350,000 informal participants, revenue gains were limited by weak enforcement and data-sharing obstacles. The brief recommends that South Africa, during its 2025 G20 presidency, advocate for an 'Africa Stack' of open APIs and modular technology to spur private sector innovation and improve tax administration across the continent.

• The shadow economy in Northern, Southern, Central and Eastern Africa is estimated by EY to range from 24.1% to 41.6% of GDP, resulting in billions of dollars in lost revenue.
• The IMF estimates that informal economic activity in Africa accounts for approximately 35% of GDP, valued at around $1–1.2 trillion.
• South Korea significantly reduced its shadow economy from approximately 28% of GDP in 1999 to about 7.6% currently by implementing the Tax Incentive for Electronically Traceable Payments (TIETP), which encouraged consumers to use electronic payments via tax deductions.
• In Uganda, integrating taxpayer identification numbers with the national ID system allowed the Uganda Revenue Authority to register more than 350,000 informal sector participants by 2022, though revenue impact was limited by legal obstacles to data sharing and weak enforcement.
• Digital payments can reduce the shadow economy by creating audit trails and increasing transaction visibility, but adoption by consumers alone is insufficient if non-compliant firms refuse to adopt point-of-sale systems.
• African countries have attempted to raise revenue through taxes on digital financial services (DFS), with over 10 countries levying transaction taxes between 0.2% and 5% in 2022; however, excessively high rates can hinder financial inclusion.

APA

South African Institute of International Affairs (2025). Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy. https://saiia.org.za/research/harnessing-dpi-to-address-informality-and-boost-drm-a-case-of-the-shadow-economy/

Chicago

South African Institute of International Affairs. Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy. 2025. https://saiia.org.za/research/harnessing-dpi-to-address-informality-and-boost-drm-a-case-of-the-shadow-economy/.

Wikipedia

{{cite report |author=South African Institute of International Affairs |title=Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy |date=15 September 2025 |url=https://saiia.org.za/research/harnessing-dpi-to-address-informality-and-boost-drm-a-case-of-the-shadow-economy/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{southafricaninstituteofinternationalaffairs2025harnessing, author = {{South African Institute of International Affairs}}, title = {{Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy}}, institution = {South African Institute of International Affairs}, year = {2025}, month = sep, url = {https://saiia.org.za/research/harnessing-dpi-to-address-informality-and-boost-drm-a-case-of-the-shadow-economy/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }