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

This policy brief by the South African Institute of International Affairs examines how Digital Public Infrastructure (DPI)—comprising digital identity, payments, and data-sharing systems—can be used to reduce the shadow economy and improve domestic resource mobilisation (DRM) in Africa.

• The shadow economy in Africa, which includes both informal and illicit activities designed to evade taxes, represents a significant loss of revenue. In Northern, Southern, Central, and Eastern Africa, the shadow economy is estimated to range from 24.1% to 41.6% of GDP. The three African countries with the largest shadow economies are Sierra Leone, Niger, and Ethiopia, all of which have tax-to-GDP ratios below the regional average of approximately 16%.
• Digital payments can reduce the shadow economy by increasing the visibility of transactions and creating audit trails, making activities easier to regulate and audit. However, consumer adoption alone is insufficient; firms must have compelling reasons to adopt these systems. For example, in Uruguay, tax compliance did not improve despite increased card usage because non-compliant firms avoided point-of-sale (POS) systems.
• South Korea successfully reduced its shadow economy from approximately 28% of GDP in 1999 to about 7.6% by shifting focus from seller deterrents to consumer incentives. The Tax Incentive for Electronically Traceable Payments (TIETP) allowed wage earners to claim tax deductions for purchases made via electronic payments, disrupting collusive cash-based tax evasion between buyers and sellers.
• India's experience with demonetisation and the 'India Stack'—which integrates Aadhaar (digital ID), the Unified Payments Interface, and consent-based data-sharing—increased the use of digital payments and provided tax authorities with better visibility into sales, thereby improving compliance under the Goods and Services Tax regime.
• Uganda's integration of taxpayer identification numbers with the national ID system allowed the Uganda Revenue Authority (URA) to register over 350,000 informal sector participants by 2022. While the Electronic Fiscal Receipting and Invoicing System increased VAT revenues by 12% through real-time data, overall revenue impact was limited by weak enforcement, lack of automated data updates, and legal barriers to cross-agency data sharing.
• The document recommends that African countries pursue DPI as a multi-layered ecosystem rather than a simple technology fix. It suggests that South Africa, during its 2025 G20 presidency, should advocate for an 'Africa stack' using open APIs and modular technology to encourage private sector innovation and scalable deployment.
• Tax authorities in Africa are advised to prioritize 'strategic compliance targeting' rather than targeting small-scale, unregistered vendors. Efforts should focus on registered actors who operate informally, such as construction firms, professional services, and small businesses with high earning potential that 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} }