Pension coverage and Africa’s informal economy

Pension coverage and Africa’s informal economy

Most people in Africa lack social protection. A common narrative across the continent is that social protection is only possible for the only small percentages of populations in formal employment.

Most people in Africa lack social protection. A common narrative across the continent is that social protection is only possible for the only small percentages of populations in formal employment. A large informal sector has created a dual challenge. Not only are workers in informal employment difficult to target, but they also only contribute slightly, if at all, to overall tax collection.

According to the International Labour Organization (ILO), two billion of the world’s employed population aged 15 and over work informally; for Africa of total employment numbers, 85.8% are informally employed.

Informal sector employment does however contribute to Africa’s economic productivity. The agricultural sector, which predominantly employs seasonal workers informally, remains a high proportional contributor to Gross Domestic Product (GDP) for most African countries. Clearly, this presents limitations to traditional long-term savings products, like pensions.


A 2016 study by the National Bureau of Statistics (Nigeria) on the contribution to GDP of the formal vs. informal sectors found that the informal sector accounted for 92% of agriculture GDP in 2015.

In Nigeria, only 10.5 % of the workforce is formally employed and covered by the Contributory Pension Scheme (CPS) of the National Pension Commission (PenCom).Nigeria, Africa’s largest economy and most populous country, is proactively looking to solve this dilemma. These metrics point to a situation that if not urgently tackled will result in most Nigerians having negligible lifetime savings and possibly spending their old-age in abject poverty.

Nigeria can serve as an important litmus test for other African countries that are contemplating innovative alternative pension savings for their respective informal sectors.

Several countries including Rwanda, Nigeria, Kenya, Ghana, South Africa and Uganda are at various stages of crafting inclusive and affordable micro-pension schemes targeting their large informal sector workforce. PenCom wants to cover 30% of the working population under the Contributory Pension Scheme (CPS) by 2024. The Micro Pension Scheme is an important tool in achieving this.

Statistics provided by PenCom speak to an encouraging start:

  March 2020 September 2020
RSA FUND V (Value NGN mn) [a]; 9.60 32
Total RSA Registrations [b] 8,998,580 9,039,748
Population age 15-59, both sexes combined [c] 107,194,000
Penetration [b]/[c] <1%

*RSA FUND V: Micro Pension Fund is for the informal sector and employees of organisations with less than 3 employees. It was launched in March 2019.

Below is the population pyramid of Africa as modelledby the United Nations Department of Economic and Social Affairs: Population Dynamics. With 59.8% of Africa’s current population under the age of 24 and only 3.4% of the current population of the age of 65, current policies on savings in Africa may be lulled into a false sense of security, given Africa’s current youthful cohort.


However, it is important to fully consider the changing demographics of Africa. With medical advances, better nutrition, and overall improvements in the general standard of living, Africans are living longer. The continent’s current youthful cohort will represent a sizeable number of individuals who need to draw on savings during their retirement. Without progressive reform to the pensions and savings environment, (particularly for those in the informal sector), governments across Africa are likely to face mounting pressure to provide appropriate social welfare. Currently, the global population of +60-year-olds is slightly over 1 billion, with Africa contributing 74 million (7%). By 2060, the global population of +60-year-olds will be approximately 2,3billion (x2 growth), with Africa contributing 300million (13%) of the total.

To avert fiscal and social stress, policy-making on pensions and social security in Africa needs to quickly move to enable affordable, convenient, and secure micro-pension products to be established.

Technology (fintech) is proving to be a key enabler of financial inclusion and pension provision in Africa. Countries like Rwanda are demonstrating that national projects incorporating national identification, technology, and high mobile-phone penetration, can be harmonised towards financial inclusion and a broad-based adoption of savings products. The United Nations Population Division records Rwanda’s current population at 12.9million, with 7.2 million aged between 15 – 59 (by definition, the economically active population cohort). As of30 June 2020, the Rwanda Utilities Regulatory Authority (RURA) recorded 9.8million active mobile subscriptions (75% of the population). This serves as an important platform for the delivery of a broad range of financial services, including micro-savings products. Around three in five adults in Rwanda use mobile money, compared to just over one in three adults in Rwanda that use banking services. Digital financial services delivered via mobile platforms present the best means for fast-tracking financial inclusion and savings on the continent. The Rwanda Fin Scope Survey, 2020 provides ample anecdotal evidence to support this notion, where mobile money is the financial services facility closest to most of the population.

Average time taken to destination (in minutes:seconds) by provinces

Destination Kigali City Southern Province Western Province Northern Province Eastern Province National average
Umurenge Sacco 21:25 45:38 43:55 41:77 43:42 38:86
Mfi's 22:74 48:68 47:18 47:01 47:96 41:16
Bank Branch 22:78 50:20 49:03 48:06 48:25 42:85
ATM 22:06 49:23 48:68 49:86 47:67 41:21
Mobile Money Agent 8:96 23:62 23:76 22:36 17:49 18:78

Source: Rwanda Fin Scope Survey, 2020

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