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

The document argues that digital public infrastructure (DPI)—comprising digital identity, payments, and data-sharing systems—can increase the visibility of economic activities in Africa's shadow economy, which accounts for roughly 35% of GDP. It contrasts the approach of some African nations, which tax digital financial services (DFS) transactions directly, with the strategies of South Korea and India, which used digital systems to create audit trails and improve broader tax compliance. The brief recommends that African governments adopt a multi-layered DPI ecosystem, prioritize strategic compliance targeting of high-value non-compliant actors, and leverage South Africa's 2025 G20 presidency to foster an 'Africa stack' for scalable deployment.

• The shadow economy in Africa, which includes both informal and illicit activities designed to evade regulation, represents approximately 35% of GDP, valued at around $1–1.2 trillion according to the IMF.
• Cash transactions are a primary driver of the shadow economy because they lack a formal audit trail, contributing to a tax gap where the three countries with the largest shadow economies—Sierra Leone, Niger, and Ethiopia—have tax-to-GDP ratios below the regional average of 16%.
• There is a strategic difference between African countries like Uganda that levy taxes on digital financial services (DFS) transactions (ranging from 0.2–5%) and countries like South Korea and India, which used digital systems to increase transaction transparency to expand the overall tax net.
• South Korea significantly reduced its shadow economy from approximately 28% of GDP in 1999 to 7.6% by implementing the Tax Incentive for Electronically Traceable Payments (TIETP), which incentivized 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 over 350,000 informal sector participants by 2022, though revenue gains were limited by weak enforcement and data-sharing obstacles.
• The document recommends that African tax authorities avoid targeting small-scale unregistered vendors and instead focus on 'strategic compliance targeting' of registered actors with higher earning potential, such as construction firms and professional services, who deliberately evade taxes.

APA

Mopipi, K. B. N., Banya, R. M., & Makumbirofa, S. (2025). Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2025/09/SAIIA_PB-314_HarnessingDPI.pdf

Chicago

Mopipi, Kesao baka Nancy, Roland Mwesigwa Banya, and Sandra Makumbirofa. Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy. South African Institute of International Affairs, 2025. https://saiia.org.za/wp-content/uploads/2025/09/SAIIA_PB-314_HarnessingDPI.pdf.

Wikipedia

{{cite report |last1=Mopipi |first1=Kesao baka Nancy |last2=Banya |first2=Roland Mwesigwa |last3=Makumbirofa |first3=Sandra |title=Harnessing DPI to Address Informality and Boost DRM: A Case of the Shadow Economy |publisher=South African Institute of International Affairs |date=August 2025 |url=https://saiia.org.za/wp-content/uploads/2025/09/SAIIA_PB-314_HarnessingDPI.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mopipi2025harnessing, author = {Mopipi, Kesao baka Nancy and Banya, Roland Mwesigwa and Makumbirofa, Sandra}, 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 = aug, url = {https://saiia.org.za/wp-content/uploads/2025/09/SAIIA_PB-314_HarnessingDPI.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }