Africa’s economic story is often told in two halves: the modern, formal sector: banks, multinationals, regulated industries, and the sprawling informal economy that seems perpetually outside the reach of tax authorities, regulators, and investors. For decades, the informal economy has been framed as either a “problem to be solved” or a transitional phase on the way to formality. That framing is dangerously outdated.
Today, the informal economy is not a shadow running alongside Africa’s formal economy. It is the backbone of African economic life. In Sub-Saharan Africa, informal employment accounts for over 80% of non-agricultural jobs, and when including agriculture the proportion is even higher (ILO via Wikipedia). In Nigeria, the National Bureau of Statistics (NBS) reported that 92.3% of employed persons were in informal employment in Q3 2023 (nigerianstat.gov.ng, Reuters).
With Africa’s working-age population projected to grow by 450 million—or nearly 70%—by 2035, the future of the continent will not be determined by whether informal activity “graduates” into formality, but by whether African economies, firms, and policymakers can deliberately blur the lines between formal and informal activity to create hybrid systems of resilience and innovation (World Bank).
The misconception that informal activity is subsistence-driven, small-scale, and stagnant is increasingly untenable.
For example:
Informal cross-border trade in East Africa is estimated at $17.6 billion annually, accounting for as much as 30–72% of regional trade between neighboring countries (Trade Unions in AfCFTA advocacy, East African Community report).
Mobile money continues to reshape financial inclusion. In 2023, Sub-Saharan Africa accounted for 835 million registered mobile money accounts, contributing significantly to economic activity (GSMA).
These are not marginal or dying sectors. They are systems of production and exchange, parallel to formal supply chains, yet deeply interwoven into everyday economic life.
For years, development policy focused on “formalizing” the informal economy via taxation, registration, or compliance incentives. But aggressive attempts at formalization often erode livelihoods without providing equivalent protections. When Lagos State imposed a ban on motorcycle taxis (okadas) in 2022, the policy led to the seizure and crushing of over 2,000 bikes. The sudden crackdown left thousands without livelihoods, triggered protests, including rioting and bonfires, and brought socioeconomic stress rather than economic reform.
The challenge, then, is not to erase informality. It is to blur the divide, enabling companies and governments to operate seamlessly across both systems.
Global business models face increasing obsolescence. McKinsey found that the average lifespan of an S&P 500 company has dropped from 61 years in the 1950s to just 18 years today (IMD).
African firms reliant on formal-only distribution and narrow definitions of bankable customers risk becoming stranded assets. Contrastingly, informal markets, though chaotic, often outpace formal systems in resilience and reach.
Mobile money exemplifies this. Before banks adapted, informal agent networks offered scale. Today, mobile money transaction volume in Sub-Saharan Africa is in the hundreds of billions, underpinning everyday commerce (Worldbank).
Corporates must resist capturing informal markets by replacement. Instead, they should co-create value:
🟨 Nestlé‘s approach in Africa demonstrates how a company can effectively serve low-income urban areas by partnering with, rather than replacing, informal distribution networks. Nestlé empowers these local entrepreneurs to reach a wider customer base, strengthens local economies, and builds a more inclusive supply chain. They do this by providing micro-distributors with training, customized packaging, and access to credit.
🟨 Fintechs like M-KOPA and Opay scale through integration with informal financial flows, offering trust and liquidity in previously excluded spaces.
Rather than viewing informality as a fiscal drain, governments can treat it as a fiscal partner:
❌ The IMF estimates Africa loses up to $60 billion annually due to informality. Yet, smart designs like Rwanda’s presumptive tax scheme simplifies compliance while capturing value from informal traders (IMF).
Aligning taxes with capabilities, not extracting maximum revenue, is key to sustainable inclusion.
If informality is enduring, infrastructure must bridge both worlds:
→ Digital identity systems (for example, Nigeria’s NIN, Ghana Card) can connect informal actors to credit and social services.
→ Regulatory sandboxes allow innovation in fintech, allowing services tailored to informal dynamics.
→ Public-private logistics platforms bridge informal producers with formal markets.
The AfCFTA could elevate this integration, legitimizing informal cross-border trade could unlock new economic value.
Traditional playbooks are no longer enough. They nibble at the edges of informality without reshaping its foundations. To truly benefit from the $1 trillion+ value embedded in Africa’s informal economy, investors must embrace fit-for-purpose innovations that mirror the economy’s own logics. Four frontiers stand out:
Informal markets run on trust, not titles. Creditworthiness is often judged in churches, WhatsApp groups, or rotating savings clubs, not entirely in bank statements. Investors can back platforms that transform these social trust graphs into investable assets.
Mobile money transaction histories, neighborhood co-op contributions, or even WhatsApp group remittances can be quantified.
These trust metrics could anchor community-based credit scores or even securitized products. Imagine a Trust Index ETF built on lending reliability in Lagos, Accra, or Nairobi.
2. Distributed Manufacturing Pools
Africa’s cities are dense with tailors, welders, carpenters, and repair shops, micro-workshops that already operate as decentralized production units. Instead of building one mega factory, investors could fund distributed manufacturing pools, connecting 10,000+ micro-nodes into coordinated production grids.
AI and IoT can synchronize orders, quality control, and logistics across these clusters.
This transforms the informal workshop from survivalist enterprise to an investable supply-chain node.
The West fears AI displacing routine work. Africa’s informal economy already thrives on microtasks, ad hoc gigs, and swarming labor from mechanics to delivery riders. Instead of forcing “Uber-for-X” clones, investors can fund platforms that:
Aggregate informal labor swarms into flexible workforces.
Use AI-driven demand forecasts to match capacity with shifting market needs.
This creates adaptive, swarm-based workforces that mirror informality’s resilience while scaling its efficiency.
Every day, informal economies produce vast data exhaust: foot traffic, seasonal migration, cash cycles, consumption surges. Instead of being lost, or worse, harvested for ad revenue, this data can be commoditized.
Investors could back futures contracts tied to informal flows: onion prices in Kano, boda-boda fuel demand in Kampala, or second-hand clothing cycles in Accra.
The organizations and economies succeeding at formal-informal integration are pioneering approaches that will likely define business and economic development for the next decade. As global economic volatility increases, the advantages of hybrid systems become increasingly valuable.
🟦 Companies: The competitive landscape is shifting toward organizations that can operate effectively across multiple economic systems while maintaining the advantages that each system provides. This represents a fundamental change in how we think about business model design, operational optimization, and competitive strategy.
For corporate executives, the strategic question is not whether to engage with informal economic systems, but how to build capabilities that capture value from both formal and informal approaches while contributing to overall economic integration and growth.
🟦 Government: For policymakers, the challenge involves creating regulatory and infrastructure frameworks that support integration without eliminating the advantages that make informal systems valuable to economic resilience and innovation.
The $1.49 trillion informal economy in Nigeria represents the largest business model innovation opportunity in one of the world’s most dynamic markets. Organizations that successfully integrate with these systems won’t just capture market share; they’ll establish new standards for how business operates in complex, rapidly changing economic environments.
What we are seeing across Africa is not a developmental lag but an early indication of how economies everywhere may evolve: distributed, adaptive, and data-rich, yet operating outside traditional institutional boundaries.
The imperative now is not to force these systems into yesterday’s molds, but to design the connective tissue that can translate their resilience into scalable prosperity.
If that shift happens, Africa will not just be catching up to the world. It will be charting the blueprint for economies that are more fluid, more networked, and ultimately more future-ready than the industrial forms we inherited.
Africa’s informal economy is evolving faster than conventional models can keep up. Alexander George Consulting helps leaders, investors, and policymakers decode these dynamics and design strategies that capture real, scalable value. Contact us to learn more.
