Letlhokwa Geoge Mpedi is the Vice-Chancellor and Principal of the University of Johannesburg. Tshilidzi Marwala is a Rector of the United Nations University and UN Under Secretary-General.
They recently published an opinion article that first appeared in the Daily Maverick on 13 March 2025
A disconcerting one-third of the global population lacks formal social security, starkly indicating that the current framework is insufficient to meet the needs of a substantial portion of the workforce.
In 2020, GG Alcock, the author of Kasinomics, observed that “the informal economy is invisible but all around us, like a mist drifting by our car windows, hanging around on street corners, covering the townships. It is growing at an urgent organic pace unmatched by the formal sector.”
The informal economy is indeed experiencing substantial growth. And particularly within the Global South, it represents a sector we ought to be acknowledging and addressing with far greater seriousness.
However, in the rapidly evolving age of artificial intelligence (AI), this growth brings broader and more complex considerations that necessitate meticulous attention.
According to the World Bank, the informal economy accounts for about two billion workers or 60% of the global adult labour force, with a notably higher prevalence in low- and middle-income countries.
This pervasive informality, however, can significantly limit economic growth, substantially reduce crucial tax revenues and perpetuate the existence of workers in vulnerable jobs without essential social security.
In 2010, Nicola Smit and Letlhokwa Mpedi argued that “most social insurance schemes link the concept of contributor to that of employee. This is problematic, since the notion ‘employee’ is by and large used to refer only to ‘standard’ formal sector workers. Occupational and public social insurance schemes, therefore, generally limit their scope to traditional or typical formal sector employees.”
A disconcerting one-third of the global population lacks formal social security, starkly indicating that the current framework is insufficient to meet the needs of a substantial portion of the workforce.
Many informal workers operate outside established regulatory frameworks, rendering it exceedingly challenging to extend vital social security and essential labour protection to them. Without the stability of consistent earnings, workers cannot contribute meaningfully to social security schemes or qualify for traditional benefits.
In addition, informal workers frequently lack access to crucial healthcare, unemployment insurance or comprehensive pension plans, leaving them vulnerable in times of crisis.
This vulnerability was painfully apparent during the tumultuous Covid-19 pandemic, which exposed the fragility of their economic situation. And many informal workers face limited access to essential banking, credit and digital payment systems, making collecting contributions or effectively receiving benefits exceedingly tricky.
The intricate interplay between AI, the informal economy and social security has profound implications for the global economic growth trajectory. A lack of social security within the informal sector engenders economic inefficiencies by significantly limiting consumer spending, substantially reducing workforce productivity and exacerbating economic inequality.
Without access to critical social safety nets, informal workers cannot adequately invest in their businesses, effectively upskill themselves or diligently save for unforeseen emergencies, perpetuating debilitating cycles of poverty and economic instability.
However, AI-driven solutions present a transformative opportunity to integrate informal workers into broader economic systems, effectively enhancing productivity and significantly bolstering financial inclusion.
Governments and businesses can cultivate more stable and resilient economic environments by strategically leveraging AI for microfinance initiatives, robust digital banking platforms and ubiquitous mobile payment systems. AI-powered credit assessments, for example, can provide informal workers with access to vital loans and strategic investment opportunities, fostering entrepreneurship and driving sustainable economic growth.
Additionally, sophisticated predictive analytics can empower governments to design adaptive social security policies that dynamically respond to evolving informal labour trends.
Formalising specific aspects of the informal economy through innovative AI-based financial services can also significantly expand the tax base, generating increased government revenues that can be reinvested into critical infrastructure, comprehensive education and accessible healthcare.
When social security is effectively extended through AI-driven innovations such as blockchain-based micro-pension schemes, informal workers gain essential financial stability, significantly boosting overall economic resilience.
As AI evolves at an accelerated pace, the paramount key will be ensuring equitable access to these transformative technologies so that the informal sector becomes a potent driver of inclusive growth rather than a persistent site of economic marginalisation. These multifaceted challenges have now been further complicated by the looming threat of job displacement that AI unequivocally presents.
Access to technology and digital literacy affects informal sector workers, notably in their ability to leverage sophisticated AI tools for enhanced job opportunities and robust social security. As the glaring digital divide illustrates – particularly prevalent in the Global South – there are profound disparities between those who possess access to cutting-edge technology and those who do not, with subsequent far-reaching implications for economic equity.
This task is necessary, considering that the rapid rise of AI technologies could fundamentally transform the sector, offering unprecedented opportunities. Research suggests that AI can significantly benefit the informal sector through the implementation of blockchain technology, automated services, predictive analytics, streamlined supply chain management, AI-driven credit assessments and a plethora of other innovations, leading to substantial job creation, enhanced efficiency, robust financial inclusion and significant market expansion.
Forward-thinking policies that prioritise improving education, enhancing access to finance and refining business regulations rather than resorting to punitive measures, are critically required to ensure this optimistic vision becomes tangible.
Mobile money and blockchain technologies could effectively facilitate the implementation of micro-pension and insurance schemes. For instance, M-Pesa in Kenya demonstrates how effortlessly mobile payments can be used and how seamlessly these systems can be embedded within the informal sector.
AI-driven systems can also effectively track intricate informal labour patterns and design adaptive social security policies responsive to evolving needs. In Indonesia, for example, GoJek leverages AI to assess gig workers’ financial stability and offer tailored insurance plans.
As with the myriad changes AI presents, we must strengthen labour laws – and, in this case, extend vital protection to informal workers and gig economy participants.
There is no justifiable reason that the informal sector cannot significantly benefit from this transformative wave of AI. We must resolutely ensure that workers are adequately protected – and this crucial endeavour begins with a deep and comprehensive consideration of social security.
By seamlessly integrating AI-driven solutions alongside inclusive and equitable social security policies, the informal sector stands to profoundly transform the global economy, fostering a fairer and more prosperous future for all.
As Alcock argues, we must recognise the multifaceted multitudes of the informal sector and acknowledge its immense untapped potential.
*The views expressed in this article are that of the author/s and do not necessarily reflect that of the University of Johannesburg.
