Foreword 3

Explanatory Notes 4

Abbreviations 5

Acknowledgements 7

Executive Summary 13

1. The New Economics of Social Inclusion 19

 Introduction 20

 The importance of social inclusion 21

 Uneven, incomplete progress on social inclusion 22

 New and emerging challenges to social inclusion 23

  The risk of widening inequalities and exclusions from digital and AI divides 23

  The potential for climate change to weaken livelihoods, services and adaptive capacity 26

  The capacity of energy transitions to expand resilience, while distributional risks remain 28

  The continuing effect of geopolitical pressures on challenges to social inclusion 28

 The mounting costs of social exclusion 30

  The speed and scale of transformations and their impact on exclusion 30

  The economic cost of exclusion and delayed inclusion 30

 The New Economics of Social Inclusion 32

  Guiding principles of the New Economics of Social Inclusion 33

  How NESI advocates for socially inclusive transformation 34

 Policy compact for socially inclusive transformation 36

 Conclusions 36

2. Towards a Socially Inclusive Transformation 39

 Introduction 40

 Benchmarking socially inclusive transformation 40

  Economic transformation 40

  Energy transformation 41

  Digital transformation 41

  Economic equity 41

  Social equity 42

 Benchmarking progress on SIT: key insights 43

  Increased socially inclusive transformation scores with a rise in income, but vastly different scores among countries at similar levels of income 43

  Progress in transformation not always accompanied by inclusiveness 43

  Uneven progress across different transformations and equity dimensions, with social equity and energy transformation emerging as the weakest links 44

  SIT dashboard for LDCs, LLDCs and SIDS 44

  Sharply divergent pathways in middle-income countries, with low-income countries furthest behind in terms of digital transformation and social equity 46

  Leaders in transformation and inclusion 47

 Conclusions 47

3. Challenges and Opportunities in Advancing Socially Inclusive Transformation 49

 Introduction 50

 The persisting deficits across key dimensions of social inclusion 50

  Barriers to economic participation 50

  Barriers to education and skill development 54

  Inequities in healthcare access and outcomes 55

  Deficits in voice and representation 57

 New opportunities and challenges that transformation presents 57

  New opportunities from economic transformations 58

  Digital technologies and artificial intelligence 61

  The energy transformation 67

 Conclusions 69

4. Institutions and Policies for Socially Inclusive Transformation 71

 Introduction 72

 Expanding people’s access to education, health, and social protection 72

  Education: from opportunity to skills for the future 72

  Health systems for building resilience and socially inclusive transformations 75

  Providing universal social protection in a digital era 77

 Universal access to digital and green energy services 78

  Advancing inclusive digital transformation 78

  Energy access for all 79

 Fostering inclusive labour markets during technological and green transformations 80

  Decent work and portable benefits for gig workers 80

  Active labour market policies during technological and green transformations 81

  Reducing gender pay gaps 82

  Steering innovation towards employment creation 83

 Policies and institutions for ensuring shared prosperity 83

  Improving labour’s share of income 84

  Fiscal policies: taxation for socially inclusive transformation 87

  Policy coherence, sequencing and coordination 90

 Conclusions 90

5. International Cooperation for a Socially Inclusive Transformation 93

 Introduction 94

 A paradigm shift in national development planning 94

  From structural transformation to socially inclusive transformation 94

  From wage-only employment to diversified livelihood and compensation for nonmarket value generation 95

  From one-degree-for-lifetime to lifelong learning 95

  From extractive to regenerative digital economic systems 95

  From concentrated ownership to distributed participation, including in digital and green assets 95

  From reactive to anticipatory governance for shaping future transformations 96

  From global competition to global cooperation on shared infrastructures 96

 Strengthening international cooperation and multilateralism in an increasingly fragmenting world 96

 The gains of multilateralism despite persisting challenges 96

  International cooperation in taxing the digital economy 97

  Multilateralism weakened by geopolitical fragmentation 98

 The way forward 100

Bibliography 101

Appendix 111

 Socially inclusive transformation (SIT) scores by country 111

Figures

1.1 Persistent gaps across key dimensions of inclusion 22

1.2 Rising within-country income inequalities 24

1.3 Growing income gaps: 1950–2022 25

1.4 How the digital divide and the AI divide hinder social inclusion 25

1.5 How climate change hinders social inclusion 27

1.6 Disaster driven internal displacements in 2024 27

1.7 Geopolitical fragmentation and social inclusion 29

1.8 Immediate versus delayed investments in social inclusion, 2025–2045 31

1.9 The New Economics of Social Inclusion: making transformations work for all 35

2.1 Socially inclusive transformation (SIT) scores and income levels 43

2.2 Global patterns in socially inclusive transformation 44

2.3 Regional performance across sub-pillars 45

2.4 Socially inclusive transformation (SIT) in countries in special situations and other developing countries 45

2.5 Performance across sub-pillars, by income group 46

3.1 Male and female labour force participation rate, 1990–2025 51

3.2 Labour force status by disability status and region, 2025 or latest available year 52

3.3 Percentage and composition of informal employment as a share of total employment, by sex and country income group, 2023 54

3.4 Minimum proficiency in mathematics at the end of lower-secondary education, 2022 or latest available year 55

3.5 Proportion of women experiencing problems in accessing healthcare, 2024 or latest available year 56

3.6 Share of non-agricultural agrifood systems employment in total employment 60

3.7 Changes in employment by disability status, 2019–2022 64

4.1 Tax revenue and public health spending, per capita, 2024 76

4.2 Social protection benefits, effective global coverage, 2017–2023 77

4.3 Relative redistribution through taxes and transfers, median, by country group, 2000 and latest year available 87

Boxes

1.1 Comparing structural transformation, integrated inclusive development, and the New Economics of Social Inclusion 33

2.1 Methodology of the socially inclusive transformation (SIT) score 42

3.1 Youth employment policies shifting South Africa’s growth path 59

3.2 Impacts of artificial intelligence on the energy transition: risks and opportunities 61

3.3 Harnessing digital transformation and AI for the inclusion of Communities Discriminated on Work and Descent 65

5.1 Debt relief and social development: evidence from the Heavily Indebted Poor Countries Initiative 98

5.2 Strengthening international tax cooperation for social inclusion 99

Figure boxes

3.1.1 Simulated economic effects of youth employment policies in South Africa 59

Tables

2.1 Top five countries by each pillar and combined SIT score 47

2.2 Top five countries in terms of their scores under each sub-pillar 47

4.1 Policy interventions by area and objectives for equity, adaptation and resilience 92