The Informal Economy: A Major Pillar of Economic Activity in Africa

The informal economy is a significant contributor to economic activity in Africa, accounting for between 30% to 40% of the continent's Gross Domestic Product (GDP), according to consolidated estimates from the United Nations Conference on Trade and Development (UNCTAD) and the World Bank. In some countries, its weight is even more pronounced, such as in Nigeria, where it is estimated to account for 42.5% of GDP.

A Significant Contribution to Wealth Creation, but Limited Fiscal Capture and Integration

Despite its importance, the informal economy in Africa remains poorly structured and largely under-regulated. It generates essential activity for the survival of millions of households, but severely limits the capacity of states to finance their policies and infrastructure. According to the World Bank, countries most affected by informality record estimated losses of between 5% to 12% of GDP in public revenues, reducing the budget margins allocated to social policies and infrastructure.

A Dominant Economy

The fiscal weakness is closely linked to a social protection deficit. Data from the International Labour Organization (ILO) indicate that 60% to 80% of African workers do not benefit from formal protection. In some countries, this exclusion is even more pronounced, particularly in the agricultural, commercial, and domestic sectors.

Stable but Persistent

The global evolution of the phenomenon shows remarkable stability. The informal employment rate has decreased from 84.3% in 2005 to approximately 83% in 2024, according to consolidated data from the United Nations Economic Commission for Africa (ECA). This inertia reflects the difficulty of African economies to transform their productive structures in depth, despite the reforms undertaken.

Factors Explaining the Persistence of Informality

Several factors explain the persistence of informality. Analyses by the ILO and the International Organization of Employers highlight the low capitalization of enterprises, the limited level of education, and the demographic pressure exerted by a young and growing population. Additionally, the strong predominance of rural areas, where economic activity remains largely unregistered and centered on subsistence logic, contributes to the persistence of informality. In urban areas, retail trade and informal services dominate, confirming a concentration in low-value-added activities. The costs associated with formalization also play a determining role. Administrative, fiscal, and regulatory charges constitute a significant barrier for micro-entrepreneurs.

A Rational Response to a Complex and Costly Environment

The ILO emphasizes that informality is often a rational response to an environment perceived as complex, costly, and uninciting.

Deeply Inequitable

The sectoral distribution of the informal economy reveals a structural imbalance. In several countries, informal trade, craftsmanship, and urban services concentrate the bulk of activity, while subsistence agriculture remains dominant in rural areas. For example, in Morocco, nearly 70% of agricultural holdings have less than 5 hectares, with limited integration into formal production and financing systems. In Senegal, informality affects up to 95% of employment, illustrating the magnitude of the phenomenon in some economies.

A Progressive Transformation

In South Africa, the phenomenon evolves differently: according to Statistics South Africa, the structure of the informal economy is gradually transforming, with a rise in services and a relative decline in trade, without significantly reducing its overall weight. On the social level, informality disproportionately affects certain categories of the population. Women represent more than 85% of informal workers in several African countries, particularly in commercial and domestic activities. Young people are also heavily affected: in Nigeria, nearly 98% of active individuals aged 15 to 24 are engaged in the informal economy, according to the ILO.

A Crucial Role in Absorbing Economic Shocks

The informal economy plays a crucial role in absorbing economic shocks. During the COVID-19 pandemic, approximately 325 million informal workers in Africa were affected by revenue losses, according to the Conference of African and Francophone Chambers of Commerce.

A Necessary but Fragile Function

This capacity to absorb economic shocks illustrates its essential social function. However, this resilience is accompanied by great fragility. The absence of formal contracts and social protection exposes workers to chronic instability, without mechanisms for stabilizing revenues.

A Progressive Integration and Structuration

At the macroeconomic level, informality supports consumption but severely limits productive investment. Informal enterprises, often under-capitalized and poorly structured, remain weakly integrated into regional and international value chains.

A Progressive and Structured Integration

In the face of these challenges, several African states have undertaken reforms to facilitate the transition to the formal sector. Single administrative windows, simplified tax regimes for micro-enterprises, and self-employment schemes have been implemented in various countries. In Morocco, the self-employment status is gradually accompanied by an extension of social protection. In West Africa, simplified taxation systems aim to expand the tax base without increasing administrative constraints. In parallel, financial technologies play an increasingly important role in the progressive formalization of certain activities. In Kenya, the development of mobile money has improved transaction traceability and facilitated access to credit for many economic actors. Despite these advances, numerous obstacles remain: administrative burdens, institutional coordination insufficiency, limited access to financing, and a lack of reliable data on the true extent of the sector. The informal economy appears as a central equation for the African continent.

A Necessary Transformation

It is not a question of its disappearance, but of its progressive transformation. The ability of African states to integrate these activities into structured economic circuits will ultimately condition their capacity to strengthen their economic sovereignty, expand their tax base, and finance sustainable social policies on a large scale.