Is Asia ready for e-formalization?

Technology can play an important role bringing workers in the Asia-Pacific region into the formal sector. Sara Elder, Senior Economist at ILO’s Regional Office for Asia and the Pacific explains why.

Comment | 25 May 2021
Putting technology to use to help formalisation. © ILO/J. Urmil
The Asia-Pacific region is home to 1.3 billion of the world’s 2 billion informal workers. Despite decades of strong economic growth rates in many countries in the Asia-Pacific region, the needle on informal employment has hardly moved at all. The average informal employment rate in the region remains at 68 per cent and in still too many countries, the rate remains well above that. 

Meanwhile, new evidence reminds us of the heavy costs that such widespread informality pose to economies’ capacity to respond effectively during times of recessions, such as the one currently underway as a result of the COVID-19 pandemic1

The ILO recently brought together government, workers’ and employers’ representatives from six countries – Cambodia, China, India, Fiji, Mongolia and the Philippines – for a first-ever South-South regional discussion on the prospects of technology to bring more workers and enterprises into the realm of the formal economy.

Participants in the online event held 18-20 May 2021 were led on an exploration of existing practices from other countries where digital solutions have been applied through public policies in ways that promise to – directly or indirectly – boost formalization.

With the impacts of COVID-19 still ongoing worldwide, governments need deep pockets to fund the many support measures so drastically needed to keep enterprises and workers afloat during these tough times. The sense of urgency in tackling informality as a means to reduce vulnerabilities and increase tax revenues has thus grown with the COVID-19 crisis. However, the renewed rallying cry for increased formalization also stems from the growing recognition that economies will never reach their maximum growth potential in circumstances where two-thirds or more of the workforce remain outside the realm of social protection, basic labour standards and sustainable enterprise development to create more and better jobs.

 “E-formalization” is about what technology can bring to the table to the pathways of formalization. The topic explores how various digital solutions can be applied in ways that increase economic capacity (productivity) of economic units, improve the application of norms or regulations, implement incentives and improve enforcement systems and measures.

In the South-South exchange, participants heard about interesting initiatives that fall under the umbrella of e-formalization, including:
  • where digital applications that offer incentives for registration and compliance of small economic units are showing promising results in Latin American countries like Brazil, Chile, Mexico and Peru;
  • where the development and enforcement of a digital payroll system is helping to tackle the problem of wage arrears to migrant workers in the construction sector in China;
  • how Estonia applied a whole-of-society approach to digitalization to emerge as the “gold standard” for digital governance and e-services.
Participants from the six countries reflected on the blockages and opportunities to e-formalization, shared experiences of what is already happening in their countries and developed roadmaps on the areas that they would like to see developed further.

Is Asia ready for e-formalization? Absolutely. Much is already happening in the region. Now, with increased awareness of how technology and formalization fit together, shared knowledge of good practices from other countries and a motivation to grasp all available tools to finally overcome the formal/informal economy divide, we can expect to see some exciting progress in this area in the future.
For more information on e-formality, see ILO webpage: Transitioning to the formal economy through technology, or E-formality.