Ethiopia’s Digital ID Ecosystem: A Legal and Policy Review

Ethiopia is joining the ranks of developing nations that have ramped up their efforts towards digitalization in recent years. With a staggering youth population of 41 million people aged 10 years and above, the country is poised to take advantage of this workforce to foster growth in its digital economy.

According to research by Google and the IFC, the digital economy in Africa is expected to reach 5.2 Pct of GDP in 2025, and as high as 8.5% in 2050. This demonstrates that digitalization can create inclusive economic growth and job opportunities. It’s worth noting that in 2021, the mobile ecosystem alone will have created 3.8 million jobs in sub-Saharan Africa.

Comprehensive and inclusive implementation of digital ID systems, among others, ensures access to finance by tackling one of the barriers to financial inclusion in low-income countries, ID documentation.

In addition, by 2025, Ethiopia’s digital transactions are expected to reach over 3 trillion Birr, which is 39 Pct of the country’s total GDP. The implementation of broad-based digital ID systems will enable the seamless facilitation of these digital transactions and their contribution to the country’s GDP is expected to be 6 Pct by 2030.

Efforts to ensure comprehensive implementation of a national digital ID were initiated in 2009, albeit with inconsistencies in implementation for various reasons. Now, the implementation of Ethiopia’s digital ID system is currently spearheaded by the National ID Program (NIDP), which is designed with the aim of ensuring an inclusive, robust, secure, and reliable single source of identity. NIDP is structured under the Office of the Prime Minister.

Identification systems can be classified as foundational ID and functional ID. Foundational ID is an all-purpose ID issued by public entities to verify the identity of a person. Functional ID, on the other hand, verifies the identity of a person vis-à-vis eligibility for a specific function. Foundational ID is an authoritative source of people’s identity information. Examples of foundational ID are digital ID, national ID, or ID associated with civil registration, while functional ID includes social security ID, a driving license, and a Tax Identification Number. The most common foundational ID in Ethiopia is the Kebele ID, issued by the lowest public administrative authority in Ethiopia.

Since its establishment under the auspices of the Office of the Prime Minister, the NIDP has been engaged in various programmatic and implementation activities. The engagement so far has addressed matters related to funding, technical capacity enhancement, registration, and the preparation of strategies and legal frameworks. Under the legal framework, a proclamation on digital ID was approved by the Parliament in March 2023, as the Ethiopian Digital ID Proclamation No. 1284/2023. Legislation to create the institutional framework and upcoming regulations on areas entrusted to the executive are in the draft stage.

The total number of individuals registered at the NIDP as of April 2 has reached 1.4 million registrants. Over 1 million digital IDs have been generated for registrants from universities, government organizations, individuals, and industrial parks. Drawing from global experience, Ethiopia is rolling out digital ID on a use-case basis. Registrants in areas of social benefits, finance, tax administration, educational facilities, and agriculture are prioritized with other areas of insight.

A registrant is required to provide biometric and demographic data upon registration.  The required biometric data includes 10 fingerprints, an iris scan, and a facial scan. The demographic data gathered are first name, father’s name, grandfather’s name, date of birth, gender, residence, and address. In addition, demographic data might include a phone number, email address, mother’s name, and postal address. Upon registration, a unique number is generated, dubbed as Fayda number. This unique 12-digit number distinguishes one registrant from the other and is a permanent number issued for life.

Given its benefits in identifying a person accurately with a low margin of error, a digital ID can be required by service-providing entities. These parties might require authentication of a person’s identity to offer services. Upon the consent of the service receiver, these service providers can authenticate the identity of the registrant using the digital identification system. This process not only ensures accuracy in service provision among private and public institutions and thereby prevents fraud and corruption, but can also be an income-generating activity through charging service providers for authentication services. As Ethiopia seeks to establish a digital ID ecosystem, there are valuable lessons it is learning from other countries such as Kenya, India, and Nigeria that have already gone through this process.

Access to financial services is primarily dependent on the identification and verification of a customer’s identity. Customers are enabled to have access to saving and lending services after the establishment of their true identity. As a reliable source of truth, inclusive digital IDs ensure inclusive financial service to customers.

Digital IDs ensure efficiency by cutting down on costs associated with verifying the identity of a person while delivering public and private services. Studies show that digital ID could save about 110 billion hours through streamlined e-government services. Moreover, a well-designed digital ID could ensure enhanced fiscal benefits through efficient taxation.

For financial institutions, gains from the use of digital IDs could decrease onboarding costs by up to 90 percent. Digital IDs have the potential to improve fragmented and inefficient service delivery by ensuring the interoperability of systems. India’s digital ID has achieved astounding performance in ensuring the highest transaction volume on digital payment systems during the COVID-19 pandemic, surpassing that of China and the USA.

Reducing payroll fraud is another area where digital ID can have an immense impact. Globally, the implementation of digital ID could save up to $1.6 trillion. In the case of Ethiopia, the Productive Safety Net Program (PSNP), a government-led and donor-funded program that aims at alleviating poverty through cash transfers to urban and rural poor households, can benefit from such ID systems. Reports show that the execution of the PSNP has been challenged by embezzlement, in which funds have been stashed away in the disguise of beneficiaries. Cases of assuming multiple identities when registering or obtaining benefits can also be avoided using digital ID.

Similarly, digital ID could prevent fraud in financial institutions. An investigation report by the Ministry of Justice has disclosed that banks have suffered ETB 1.8 billion in losses in five years and over ETB 370 billion in fraud in 2017 alone. One of the functions of digital ID is authentication, which reduces the risk of impersonation, thereby reducing damage caused by fraud. Through the implementation of state-of-the-art technology that is robust to fraud aversion, digital ID ensures building services around user needs and sharing data with confidence.

The majority of over half a billion people who do not have access to proof of identification are in Africa. This makes intra-regional trade, especially in the form of e-commerce, challenging. With the adoption of the African Free Trade Area (AfCFTA), the benefits of digital ID could go beyond borders. A scalable and interoperable form of digital ID supports regional integration by enabling the flow of data across borders.

The principles of Ethiopia’s Digital ID program are derived from multiple policies, strategic plans, and reform programs. Among these policies and strategic plans and reform programs are;

Homegrown Economic Reform: Ethiopia’s macroeconomic priorities are charted out under the Three reform areas namely sectoral, structural and macroeconomic reforms are the plans of HGER. HGER intends to implement reforms in three areas: sectoral, structural, and macroeconomic. ICT and the digital economy are two of the focus areas of sectoral reform. The reform recognizes that unlocking Ethiopia’s digital economy requires investment in the ICT sector which in turn enhances efficiency in providing civil and public services. Promoting e-commerce and digitizing the financial sector is one key reform area in this regard. The reform, among others, emphasizes the expedition of the ongoing digital ID system as the bedrock of information technology-enabled services (ITes).

National Ten-Year Perspective Plan (2020 to 2030)- the rationale for this plan is to set out a long-term strategic direction for sustainable development by identifying strategic objectives, goals, and targets with an end goal of making Ethiopia the beacon of prosperity. One of the key strategic pillars of the ten-year development plan is technological capability and the digital economy. Specific targets are provided under this strategic pillar that has an impact on or could be impacted by the digital ID program. The plan foresees that at the end of the plan’s period, the number of data centres shall increase from 1 to 3, the number of electronically delivered public services will increase from 176 to 2,500; the number of institutions that utilize electronic marketing services will increase to 3,500 by increasing electronic service coverages from 2% to 85 Pct. In addition, the plan sets out the increase in mobile and internet services from 37.2% and 18.6 Pct respectively, to 100 Pct. These targets will have an immense impact on the rollout and desirability of digital IDs as well as the inclusiveness of authentication services.

Digital Ethiopia Strategy 2025– The strategy is anchored on four fundamental pathways, with the aim of ensuring inclusive prosperity. Building IT-enabled services is one of the pathways. To ensure the effective provision of IT-enabled services both in the private and public spheres, digital ID is recognized as one of the technologies backed key systems provided under the strategy. The strategy also states that overdependence on cash-based transactions, in the absence of digital ID and payment gateways, diminishes the potential benefits of e-commerce.  It is graspable from the text of the strategy that Ethiopia has made a policy choice to implement digital ID, foreseeing its evident benefits in enhancing the digital economy. Assessing the gaps in foundational IDs, the strategy states Kebele IDs currently in use have created identity silos due to the lack of an integrated/centralized registry system. The vulnerability of Kebele IDs to forgery is another gap identified by the strategy. The interoperability of digital ID, its ability to accurately identify a person both offline and online, and its potential for application in various sectors such as agriculture, health, finance, social protection, and taxation systems are identified by the strategy.

National Digital Payment System Strategy– The strategy emphasizes both internal (within the National Bank of Ethiopia) and external alignment of the programs, one of which is NIDP. One of the strategic pillars of the strategy is building a robust, and consistent regulatory and oversight framework. The reform actions under this pillar include monitoring the implementation of new Know Your Customer (KYC) clauses. The strategy recognizes that the requirement of an ID and a copy of an ID card is exclusionary in effect as it prevents people, especially migrant women and people in vulnerable communities, from having access to financial services. The introduction of electronic KYC and digital signatures can increase access to finance by allowing remote account opening and easing access to finance. Digital ID is at the epicentre of such progress.

National Financial Inclusion Strategy- Lack of documentation, among others, is identified by the strategy as one of the barriers to financial inclusion. The strategy states that a good ID system, as an infrastructure, supports financial inclusion, strengthens the reliability of credit reference bureaus, and facilitates KYC requirements.

Key Points under the Legal Texts of Digital ID Proclamation No. 1284/2023

Drawing from international experience, Ethiopia’s draft National ID Proclamation No 1284/2023 was adopted by the House of Peoples’ Representatives to ensure a strong legal foundation for NIDP. The proclamation has the following key elements.

Consent-based- Registration to the digital ID system is a consent-based process. Upon registration, the registrant is required to fill out a consent form that requires filling out demographic data. Not only registration but also the use of digital ID is fully consent based. In order to authenticate the identity of a person, the registrant has to give permission.

Inclusive- Among the principles of National ID under the proclamation is the principle of inclusion and tackling barriers to registration and use. Registrants are expected to present documents to register. To ensure that those without access to alternative forms of identification are not unfairly excluded from the registration process, the digital identification system allows witnesses with a unique number to verify an individual’s identity.

Minimal Data Collection- upon registration, registrants shall provide biometric and demographic data. It is prohibited to collect information other than those listed in the proclamation especially sensitive information. Sensitive data are defined as data on racial or ethnic origins, genetic data, physical or mental health conditions, political opinions, religious beliefs, and any information associated with a criminal record. Collecting more than the required data is subject to criminal accountability with fines ranging from 10,000 Birr to 100,000 Birr.

Data protection, privacy and security- The proclamation recognizes data ownership belongs to the registrant and hence, any authentication of the identity of the registrant shall be done with the consent of the registrant. The registering entity is obliged to maintain the confidentiality of the personal data of the registrants during the whole cycle of digital Id activities, including collecting, authenticating, storing and processing data.

The proclamation provides general prohibitions against collecting, disclosing, distributing, printing, using, transferring a copy to a third party or publicly disclosing the personal information of registrants. As for data collected under the digital identification system, it is prohibited to disclose, transfer, or modify the personal data of any registrant except to generate anonymous statistical data or subject to court order or as authorized by law. Furthermore, the draft proclamation provides the institution in charge of data management shall be responsible to establish a reliable, robust system that can maintain secure and safe personal data.

Grievance Redressal- the regulatory institution mandated with the authority to manage national ID is endowed with the responsibility to establish a compliant handling department and notify the establishment of it to registrants. Accordingly, any person for whom digital ID service is provided has the right to lodge a complaint to the institution. In tandem with the Federal Administrative Procedure Proclamation no. 1183/2020, the draft proclamation recognizes judicial review of the decision of the institution.

Institutional Framework and Subsequent Legislations; – the draft proclamation mandates the Council of Ministers to issue subsequent legislations for the execution of the proclamation. Accordingly, the Council has the power to issue a regulation to establish a public entity entrusted with the powers listed under the draft proclamation. Optionally, it also has the power to restructure an already existing public entity to encompass the powers and duties provided under the draft proclamation. The powers of the would-be institution include; the establishment and organization of a national ID system, leading the collection of biometric and demographic data and issuance of digital ID, organizing demographic data to feed policy decisions of the government, and providing authentication services. Furthermore, the institution to be established in accordance with such regulations has the power to issue directives. Experiences from other countries such as India, show that similar regulatory institutions issue detailed rules on authentication, data sharing, card printing, grievance redressal and implementation of changes to the biometric and demographic data.

 The right to be identified is not just a fundamental right, it is an access gateway to various public and private services. The role of digital ID in facilitating easy, accessible, and reliable identification is immense. Ethiopia is among the countries that are implementing digital ID and will benefit from the issuance of digital ID through unlocking potential in e-commerce, cross-border trade, facilitating national payment, and commercialization of authentication services.

The National ID Program is rolling out digital ID based on use cases whereby priority sectors are onboarded on a collaboration basis to register residents. To establish a comprehensive legal framework, Ethiopia adopted the Ethiopian Digital ID Proclamation 1284/2023 on the 30^th of March, 2023. The proclamation inculcates rules on consent, privacy, data protection, minimal data collection, and grievance handling among others. In addition to the overarching proclamation, digital ID has its basis in various strategies and policies in use in Ethiopia.

11th Year • May 2023 • No. 117 EBR