The digital-public-infrastructure conversation has matured from “can it scale?” to governance and durability, with the World Bank’s Global DPI Program moving from foundations to scale and platforms like Kenya’s eCitizen and Rwanda’s Irembo letting users verify identity, pay for permits, and receive certificates in seconds (1)(2)(3). The debate obsesses, rightly, over citizens and privacy. But it underweights the bigger economic prize: firm-facing rails — business registration, licensing, procurement, and credit-history APIs. Here is the first-principles reframe: the cost of formality — registering, licensing, paying taxes, proving identity to a bank — is the hidden tax that keeps East African firms informal, and DPI is the only lever that cuts it by an order of magnitude. Treat the cost-of-formality as a measurable index, and DPI becomes SME industrial policy — the cheapest one a government can buy.
Key Takeaways
- The DPI conversation has matured from “can it scale?” to governance and durability, with the World Bank’s Global DPI Program moving from foundations to scale (1)(2).
- Platforms like Kenya’s eCitizen and Rwanda’s Irembo let users verify identity, pay for permits, and receive certificates in seconds — and let startups build on public rails instead of reinventing them (3).
- The debate focuses heavily on citizens and privacy; it underweights the larger economic prize of firm-facing rails: business registration, licensing, procurement, and credit-history APIs.
- The cost of formality — the time, money, and friction of registering, licensing, paying taxes, and proving identity — is the hidden tax that keeps East African firms informal.
- DPI is the only lever that cuts the cost of formality by an order of magnitude, turning multi-day, multi-trip bureaucratic processes into seconds-long digital ones.
- The reframe: treat the cost-of-formality as a measurable index, and DPI becomes SME industrial policy — arguably the cheapest and highest-leverage industrial policy a government can buy.
Why is the cost of formality the hidden tax on African enterprise?
Because becoming and staying formal — registered, licensed, tax-compliant, bankable — is expensive in time, money, and friction, and that cost keeps millions of firms informal, locked out of the credit, contracts, and growth that formality unlocks.
Consider what it actually takes for a small East African business to be formal. It must register the business (often a multi-day, multi-office, document-heavy process). It must obtain licenses and permits (each a separate bureaucratic encounter, repeated annually). It must comply with taxes (registration, filing, navigating the system). It must prove its identity and legitimacy to a bank to open an account or access credit. Each of these is a transaction with the state or the formal system, and each carries a cost of formality — the time spent (days lost from running the business), the money spent (fees, facilitation, transport, intermediaries), and the friction endured (queues, paperwork, opaque processes, repeated trips). For a small firm operating on thin margins and the founder’s scarce time, this cost is substantial — often prohibitive. So millions of firms rationally choose to stay informal: unregistered, unlicensed, outside the tax net, banking in cash. They avoid the cost of formality by avoiding formality itself.
But informality carries its own, larger cost — it locks firms out of what formality unlocks. An informal firm cannot easily access bank credit (no formal records, no legal standing), cannot bid for government and institutional contracts (which require registration and compliance), cannot build the formal track record that attracts investment, and remains capped at the scale informality allows. The cost of formality, in other words, is a hidden tax that does double damage: it burdens the firms that do formalize, and it keeps the rest informal and therefore locked out of growth. This is the heart of the formalization paradox — why so much of East Africa’s economy resists the tax and formal net: formality’s benefits are real, but its costs are high enough that firms rationally avoid it. The binding question for enterprise development is therefore not “how do we force firms to formalize?” but “how do we cut the cost of formality enough that formalizing becomes worth it?” — and that is precisely what DPI does.
How does DPI cut the cost of formality by an order of magnitude?
By converting the slow, expensive, friction-heavy transactions of formality — registration, licensing, payments, identity verification — into instant, low-cost, low-friction digital ones, DPI collapses the hidden tax that keeps firms informal.
This is what platforms like Kenya’s eCitizen and Rwanda’s Irembo actually do, and why they matter economically far more than the citizen-convenience framing suggests. On these platforms, a process that once required days, multiple office visits, intermediaries, and significant fees — registering a business, obtaining a permit, paying for a license, verifying identity, receiving a certificate — happens in seconds, online, at low cost (3). The multi-day, multi-trip, friction-heavy bureaucratic encounter is replaced by a digital transaction completed from a phone. This is not a marginal improvement; it is an order-of-magnitude reduction in the cost of formality. The time cost collapses (seconds instead of days), the money cost falls (no transport, no intermediaries, lower fees), and the friction nearly vanishes (no queues, no opaque processes). DPI is, in effect, the lever that directly attacks the hidden tax — and it is the only lever that can cut it by an order of magnitude, because the cost of formality is fundamentally a cost of transacting with the state and formal system, and digitizing those transactions is what makes them cheap.
The economic consequence is profound. When the cost of formality collapses, the calculus that kept firms informal flips: formalizing becomes cheap enough to be worth the benefits it unlocks. Firms register because registration takes seconds, not days. They access credit because the credit-history and identity APIs make them legible to lenders. They bid for contracts because compliance is digital and accessible. The order-of-magnitude reduction in the cost of formality doesn’t just make life easier for already-formal firms; it pulls informal firms across the threshold into formality and the growth it enables. And it lets startups build on the public rails — using DPI’s identity, payment, and verification infrastructure rather than reinventing it — which lowers the cost of building formal, scalable businesses (3). DPI thus does what no enforcement campaign or tax incentive can: it makes formality cheap enough to choose. The platforms exist (eCitizen, Irembo, and the World Bank’s scaling program (2)); the question is whether governments recognize what they are economically — not citizen-convenience tools, but the most powerful lever available for cutting the hidden tax on enterprise.
Why is the firm-facing prize bigger than the citizen-and-privacy debate?
Because the DPI debate’s focus on citizens and privacy, while important, underweights the economic prize that firm-facing rails deliver — and the highest-value DPI is not the citizen-services layer but the business-registration, licensing, procurement, and credit-history infrastructure that cuts the cost of formality for enterprises.
The mainstream DPI conversation centers on two things: citizen services (letting people access government services digitally) and privacy/governance (ensuring DPI doesn’t become surveillance or rent-extraction infrastructure) (1). Both matter, and the privacy concern is legitimate — without open-governance safeguards, DPI can indeed become a tool of surveillance and control. But this framing underweights the economic development prize, which is largely firm-facing. The biggest economic payoff of DPI comes not from citizens accessing services more conveniently (real but modest) but from firms being able to formalize, comply, transact, and access credit cheaply — because that is what unlocks enterprise growth, jobs, and tax revenue. The firm-facing rails — business registration, licensing, procurement portals, and especially credit-history and identity APIs — are where DPI becomes industrial policy, and they are systematically underweighted in a debate focused on citizens and privacy.
This reframe — that DPI’s bigger prize is firm-facing — has a powerful implication: treat the cost of formality as a measurable index, and DPI becomes SME industrial policy. If a government measures the cost of formality (the time, money, and friction for a firm to register, license, comply, and become bankable) as an explicit index, and sets out to cut that index through DPI, it is running one of the most powerful industrial policies available — and one of the cheapest. Unlike industrial parks (billions in public land and tax expenditure with a poor track record) or subsidies, DPI is relatively cheap to build and scales to the whole economy, cutting the cost of formality for every firm at once. It is, plausibly, the cheapest high-leverage industrial policy a government can buy: a one-time-ish investment in firm-facing digital rails that permanently lowers the hidden tax on enterprise across the entire economy. And it compounds with the region’s other digital rails — connecting to the payment infrastructure integrating cross-border commerce and the compliance infrastructure that value-addition policy requires as a public good. The firm-facing prize is bigger because it is where DPI stops being a convenience and becomes the lever that formalizes and grows an economy.
The Cost-of-Formality Index: making DPI an industrial policy
Here is the framework I would put to ministries of ICT, trade, and finance. Call it the Cost-of-Formality Index — a measurable index and the firm-facing rails that cut it, turning DPI from a convenience project into industrial policy.
The index — measure the cost of formality. Define and track an explicit index of what it costs a firm to be formal: the time, money, and friction to register a business, obtain licenses, comply with taxes, and prove identity to access credit. What gets measured gets managed; an explicit cost-of-formality index makes the hidden tax visible and gives DPI a concrete target.
Rail 1 — Business registration and licensing. Digitize business registration and licensing so they take seconds, not days — the eCitizen/Irembo capability (3). This is the entry point to formality, and collapsing its cost is the first and largest cut to the index.
Rail 2 — Procurement access. Build firm-facing procurement portals so registered firms can find and bid for government and institutional contracts digitally — connecting formality to the demand that makes it worthwhile.
Rail 3 — Credit-history and identity APIs. This is the highest-value, most underweighted rail: APIs that let a firm’s identity, registration, and transaction/credit history be verified digitally, so lenders can underwrite formerly-informal firms and the legible-revenue financing the region is building can reach them. Credit-history infrastructure is what converts formality into capital access.
The Cost-of-Formality Index reframes DPI from an e-government convenience into the cheapest, highest-leverage industrial policy available. Measure the cost of formality, build the firm-facing rails that cut it — registration, licensing, procurement, credit APIs — and a government attacks the hidden tax on enterprise across the whole economy at once. That is industrial policy: not building factories or zones, but cutting the cost that keeps firms informal and locked out of growth.
What should governments do?
Recognize DPI as firm-facing industrial policy, prioritize the business rails over (or alongside) the citizen ones, measure the cost-of-formality index, and build the credit-history infrastructure that converts formality into capital — all under open-governance safeguards.
The practical agenda for East African governments — and Uganda in particular, which lags its neighbors visibly on DPI — is to treat digital public infrastructure as the industrial policy it is. That means prioritizing the firm-facing rails (business registration, licensing, procurement, credit APIs) as economic-development infrastructure, not just building citizen-service portals; measuring and publishing a cost-of-formality index so the hidden tax is visible and the DPI effort has a target; and building, above all, the credit-history and identity infrastructure that lets formalized firms access capital, since that is what makes formality pay. Critically, all of this must be built under the open-governance safeguards the privacy debate rightly demands — DPI that becomes surveillance or rent-extraction infrastructure betrays its purpose, so transparency, data protection, and open standards are not optional. Rwanda’s Irembo and Kenya’s eCitizen show the model works; the proof-of-concept and scaling lessons are available, and the World Bank’s program offers support (2). The lagging governments should treat catching up not as a digital-convenience project but as one of the highest-return industrial-policy investments available.
The conclusion completes the bucket and the case. Across these policy pieces runs a single thread: the binding constraint in East African development is rarely the supply of capital, demand, or ambition — it is the capability and infrastructure that lets capital, demand, and ambition translate into enterprises. Digital public infrastructure is the purest expression of this thread. The cost of formality is the hidden tax that keeps millions of firms informal and locked out of credit, contracts, and growth — and DPI is the only lever that cuts that tax by an order of magnitude, turning days into seconds and friction into a phone transaction. The DPI debate’s focus on citizens and privacy, while important, underweights the bigger economic prize: the firm-facing rails — registration, licensing, procurement, credit APIs — that formalize and grow an economy. Treat the cost-of-formality as a measurable index, build the firm-facing rails that cut it, and DPI becomes SME industrial policy: the cheapest, most scalable, highest-leverage industrial policy a government can buy. eCitizen and Irembo are not just conveniences; they are the most powerful enterprise-development tools in the region — and the governments that recognize this, and build the firm-facing rails fastest, will cut the hidden tax that has held their economies back. Digital public infrastructure is industrial policy now. Build it for the firms, measure the cost of formality, and cut it by an order of magnitude.
FAQ
What is digital public infrastructure (DPI)?
DPI is shared digital infrastructure — identity systems, payment rails, data exchanges, and service platforms — that the public and private sectors build on. Examples include Kenya’s eCitizen and Rwanda’s Irembo, which let users verify identity, pay for permits, and receive certificates in seconds, and let startups build on public rails instead of reinventing them (3).
What is the “cost of formality”?
The cost of formality is the time, money, and friction a firm incurs to be formal — registering the business, obtaining licenses, complying with taxes, and proving identity to access credit. This cost is high enough that millions of East African firms rationally stay informal, which then locks them out of credit, contracts, and growth — a hidden tax on enterprise.
How does DPI help businesses, not just citizens?
By cutting the cost of formality by an order of magnitude: digitizing business registration, licensing, payments, and identity verification turns multi-day, multi-trip bureaucratic processes into seconds-long digital transactions. This makes formalizing cheap enough to be worth it, pulls informal firms into formality, and lets startups build on public rails — the firm-facing economic prize the citizen-focused debate underweights.
Why is DPI called the cheapest industrial policy?
Because, unlike industrial parks or subsidies (billions in public spending with a poor track record), DPI is relatively cheap to build and scales to the whole economy, cutting the cost of formality for every firm at once. A one-time-ish investment in firm-facing digital rails permanently lowers the hidden tax on enterprise across the entire economy.
What firm-facing DPI rails matter most?
Business registration and licensing (the entry to formality), procurement portals (connecting firms to government contracts), and — most underweighted and highest-value — credit-history and identity APIs that let lenders underwrite formerly-informal firms. The credit-history infrastructure is what converts formality into actual capital access, making formalizing pay.
Related Reading
- The Formalization Paradox: Why the Informal Economy Resists the Tax Net
- The Single Currency Is Dead — Long Live the Payment Rail (PAPSS)
- Rwanda: The Proof-of-Concept State
- Pay From Revenue, Not Equity: Legible Firms and Credit Access
Sources and Evidence
- DPI Africa — “Digital Public Infrastructure: From ‘Can It Scale?’ to ‘Where Next?'” — Source for the DPI conversation maturing from scale to governance and durability.
- World Bank — “Global Digital Public Infrastructure Program: from foundations to scale” — Source for the World Bank’s DPI program moving from foundations to scale.
- AfricLaw — “Digital Public Infrastructure through an Open Government Lens” — Source for eCitizen/Irembo enabling seconds-long identity verification, permits, and certificates, and startups building on public rails; open-governance safeguards.
- Carnegie Endowment — “Africa’s digital infrastructure imperative” — Analysis of Africa’s DPI and technology-policy stakes.
- LSE Africa at LSE — “Africa should invest in digital public infrastructure to aid regional integration” — Source for building DPI explicitly as regional-integration and economic infrastructure.