Strategic implication: The Formalization Velocity Index (FVI), BASE1's proprietary measurement framework, introduces the first forward-looking, velocity-based instrument for tracking formalization trajectories across economies. A country with high informality and accelerating formalization velocity presents a fundamentally different opportunity than a country with lower informality and no momentum. The direction matters more than the position.

By Mathieu K. Gouanou | BASE1: The World Informal Economy Summit

For decades, the institutions that govern global economic life counted workers the way archivists count documents: as static data points in a historical record. The International Labour Organization reported how many people were informal. The World Bank estimated the size of the shadow economy. National statistics offices produced annual snapshots. The challenge was documented with extraordinary precision.

The solution was never measured.

At BASE1, the conviction is different. The task is not to measure informality. The task is to measure formalization. The question is not where a country stands today. The question is how fast it is moving, and in which direction. The Formalization Velocity Index is not a refinement of existing measurement frameworks. It is a replacement of the question itself.

2 billion workers. More than 60% of the global workforce. These figures describe a world that existing institutions have observed, categorized, and largely accepted. BASE1 exists to accelerate the world beyond them.

By Mathieu K. Gouanou | BASE1: The World Informal Economy Summit

There is a number that the global economic architecture has never fully absorbed. It is not a projection. It is not a forecast derived from a model with optimistic assumptions. It is a measurement, compiled by the International Labour Organization from harmonized data covering more than 100 countries.

More than 60% of the world's employed population is active in the informal economy (ILO, Women and Men in the Informal Economy: A Statistical Picture, 3rd edition, 2018). A 2023 statistical update using 2019 data registered the global rate at 58% (ILO-WIEGO, 2023). The ILO's World Employment and Social Outlook: Trends 2024 reported that the number of workers in the informal economy surpassed 2 billion in 2023, reaching approximately 2.019 billion.

That figure corresponds to more than 2 billion workers. They are street vendors in Dhaka, domestic workers in Abidjan, smallholder farmers in the Andes, and construction laborers in Cairo. They are home-based manufacturers in Vietnam and market traders in Lagos. By every conventional definition, they operate outside the system: no formal employment contract, no access to employer-sponsored social protection, no legal recourse when wages are withheld, and no pathway to institutional credit without collateral they do not hold.

They are also, in aggregate, the largest workforce on earth.

The standard framing of informality is developmental. Rich countries have formal economies. Poor countries have informal ones. Formalization is what happens as countries grow wealthier. This framing is not wrong. It is dangerously incomplete.

OECD economies register an informality rate of approximately 16% (ILO, 2018; high-income country average from 2023 update). The global average exceeds 58%. The gap between them is not merely a function of income level. It is a function of institutional architecture: the accumulated effect of legal systems that recognize certain kinds of work and ignore others, financial systems that extend credit to documented actors and exclude undocumented ones, and tax systems that capture formal payrolls and miss informal transactions entirely.

There is a clear inverse relationship between GDP levels and the prevalence of informal employment. In low-income countries, 89% of employment is informal. In lower-middle-income countries, 81.5%. In upper-middle-income countries, 49.7%. In high-income countries, 15.9% (ILO-WIEGO Statistical Update, 2023, based on 2019 data).

The informal economy is not a residual category. It is not what remains after the formal economy is measured. It is, in the precise sense of the term, the majority of human economic activity on earth.

For three decades, the international community has measured the informal economy with increasing sophistication. The ILO tracks employment rates. The World Bank estimates GDP contributions. National statistical agencies produce household surveys. The IMF models shadow economy dynamics. The measurement infrastructure is substantial. The question it has been answering is not.

"How many people are informal?" is a backward-looking question. It produces a snapshot. It reveals where the world was when the data was collected, typically twelve to twenty-four months before publication. It does not reveal where the world is going, or how fast it is moving.

The question that matters to investors, policymakers, and institutional leaders is fundamentally different. It is the question that BASE1 was founded to answer:

How fast is formalization happening, and where is it accelerating?

That shift in framing is not semantic. It is strategic. A country with 60% informality and high formalization velocity is a more promising investment destination than a country with 40% informality and no momentum. A policy intervention that accelerates the rate of transition is more valuable than one that improves conditions within informality without reducing it. The direction matters more than the position.

Eight out of ten enterprises worldwide operate informally (ILO, 2018). The majority of them are not failing enterprises in the traditional sense. They are enterprises that have reached a ceiling imposed by their legal status rather than their productive capacity. They cannot access institutional finance without formal registration. They cannot participate in regulated supply chains without documented compliance. They cannot grow beyond a certain scale without the legal infrastructure that formalization provides.

Research on formalization outcomes in emerging markets documents labor productivity increases of 23% to 69% for firms that transition from informal to formal status (Nguyen et al., "Formalization and Firm Performance in Vietnam," Journal of Development Economics; cited in BASE1 FVI White Paper, May 2026). These are not projections. They are documented outcomes from economies where formalization has produced measurable results.

The informal economy is not a problem to be eliminated. It is a force to be harnessed, a foundation to be built upon. The question is the speed at which that foundation is being extended into formal economic structures.

The 61% figure is a global average. Global averages obscure as much as they reveal. The architecture of informal employment is regional, sectoral, and gendered. Understanding its structure is a prerequisite for measuring its velocity.

Africa registers the highest informal employment rate of any region at 85.8% (ILO, 2018). In Sub-Saharan Africa, the figure exceeds 90% in several economies (World Bank Policy Research Working Paper 10703, May 2024). Ninety-three percent of the world's informal employment is concentrated in emerging and developing countries (ILO, 2018).

Asia and the Pacific contains the largest absolute concentration of informal workers, accounting for the majority of the global informal workforce. The region's sheer demographic scale means that the formalization trajectory of economies including India, Indonesia, Bangladesh, and Vietnam will determine the global aggregate rate more than any other single factor.

Globally, the informal employment rate is 63.0% for men and 58.1% for women (ILO, 2018). The 2023 update registers 60% for men and 55% for women. However, this aggregate pattern reverses in most low-income and lower-middle-income countries: in 56% of countries, women's informal employment rate exceeds men's (ILO-WIEGO, 2023). Over 740 million women are in informal employment worldwide (ILO, 2018).

Women are not merely present in the informal economy. They are disproportionately concentrated in its most vulnerable categories: domestic work, home-based manufacturing, and street vending, sectors characterized by the lowest wages, the lowest probability of employer status, and the highest exposure to legal and financial exclusion. This is not a secondary observation. It is the central finding that will anchor Season 2 of BASE1's editorial program.

The distribution of informality is not random. It is concentrated in the economies, regions, sectors, and demographic groups that have the least institutional representation in the bodies that design formalization policy. The FVI's purpose is to make the velocity of change visible across every dimension of that distribution simultaneously.

BASE1 tracks three primary acceleration mechanisms. Institutional perspective data from this poll informs the FVI's directional analysis.

Your opinion matters!

Between 1.1 and 1.3 billion informal workers live and work in Asia and the Pacific, making it the region with the largest absolute concentration of informal employment on earth. The region's overall informal employment rate stands at 68.2% (ILO, 2018), declining to 65.9% in the 2023 update based on 2019 data: four percentage points above the global average and more than four times the OECD rate.

The scale of Asia-Pacific's informal workforce is not a static condition. It is a dynamic variable. The economies of the region are urbanizing, digitalizing, and integrating into global supply chains at a pace that no other region matches. Each of those processes creates formalization pressure.

Mobile money penetration in economies including Bangladesh, Vietnam, the Philippines, and Indonesia has expanded access to financial identity for workers who previously existed outside any documented system. The GSMA's State of the Industry Report on Mobile Money 2025 reports that mobile money services contributed over $720 billion to the GDP of countries where they are available by end of 2023, a 1.7% GDP increase. In Sub-Saharan Africa alone, mobile money contributed approximately $190 billion to GDP in 2023 (GSMA, 2025). Globally, mobile money surpassed 2 billion registered accounts and over 500 million monthly active users in 2024 (GSMA, 2025).

Digital registration platforms are reducing the administrative friction of formalization for micro-enterprises. Export-oriented manufacturing supply chains are creating compliance-driven incentives for formal documentation among their supplier networks.

The FVI's central hypothesis is that velocity, not position, determines the investment and policy opportunity. Asia-Pacific's current informality rate exceeds 65%. Its formalization momentum across multiple economies is measurable. The region does not have an informality problem. It has a velocity opportunity of a scale the world has never encountered.

The Formalization Velocity Index is BASE1's proprietary instrument for measuring the rate at which workers and enterprises transition from informal to formal economic status. It does not measure informality. It measures formalization.

The distinction is not semantic. Every existing major index in this field, including ILO employment surveys, World Bank informal economy estimates, and IMF shadow economy models, measures the stock of informality: how many people are informal, how large the informal economy is, what percentage of GDP it represents. These are backward-looking descriptive measures. They reveal where the world was. They do not reveal where it is going.

The FVI operates as a forward-looking, velocity-based instrument. It assesses formalization across multiple dimensions simultaneously, examining the rate of change rather than the level. Its computational architecture is proprietary and will be disclosed in a forthcoming technical release accompanied by an independent validation review.

What can be stated with precision at this stage is the FVI's operating principle: a country with high informality and accelerating formalization velocity presents a fundamentally different opportunity profile than a country with lower informality and decelerating momentum. Investors should position for momentum. Policymakers should accelerate what is already working. Institutions should resource the fast-movers.

The FVI makes that differentiation measurable for the first time.

Illustrative Analysis Based on Public Data

Burundi is one of the world's least-developed economies by per capita income. It is also one of the most instructive cases for understanding what the earliest stage of the formalization transition looks like, and why measuring velocity rather than position is the only approach that generates actionable intelligence in this context.

The country's informal employment rate exceeds 90%, consistent with the Sub-Saharan Africa regional pattern where 85.8% of workers operate outside formal economic structures (ILO, 2018). By conventional static measurement, Burundi presents as an extreme case of structural informality with limited near-term formalization prospect. That framing is analytically incomplete.

The relevant question for the FVI is not where Burundi's informal employment rate sits today. It is whether the conditions for formalization acceleration are present, and whether they are strengthening or weakening. Those conditions include mobile money penetration rates, digital identity infrastructure, the regulatory burden of formal enterprise registration, access to microfinance, and the degree to which export-facing sectors create compliance-driven formalization incentives.

BASE1 observes Burundi as a frontier case precisely because the formalization signals that matter, the velocity indicators, may be present at an early stage even where the stock of informality remains structurally deep. The FVI is designed to detect those early-stage signals before they are visible in conventional stock-based measurement systems.

This is the analytical value proposition of velocity measurement. It identifies the direction of travel before the destination is reached.

Editorial note: This case study is based on publicly available ILO and World Bank labor market data. No formal BASE1 partnership with Burundian institutions exists at time of publication. No country-specific FVI scores are published in this issue.

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Gouanou, Mathieu K. "The Formalization Velocity Index: Measuring the Speed of Economic Transformation." BASE1 White Paper. May 1, 2026. base1summit.org

All statistics in this issue have been reviewed and approved by Mr. John Steed, Chief Data Officer, BASE1: The World Informal Economy Summit.

A: According to the ILO, more than 60% of the world's employed population, approximately 2 billion workers, operates in the informal economy. The ILO's 3rd edition (2018) registered 61.2%; a 2023 statistical update using 2019 data registered 58%. The ILO's World Employment and Social Outlook: Trends 2024 confirmed the figure exceeded 2 billion workers in 2023.

A: The FVI is BASE1's proprietary directional measurement instrument that quantifies the rate and direction of economic formalization across national economies. Unlike static measures of informal economy size, the FVI captures how fast formalization is accelerating, decelerating, or stalling. It tracks three primary mechanisms: digital financial identity adoption, registration architecture simplification, and supply chain compliance pressure.

A: The informal economy (also called the shadow economy, underground economy, or grey economy) encompasses all economic activities by workers and enterprises not covered by formal institutional arrangements, including legal registration, taxation, social protection, and labor regulation.