The place of the informal economy in Africa

The informal economy contrasts with the “formal” sector, regulated by public authorities, taxed and controlled.

In Africa, however, the informal economy occupies a prominent place, which is one of the many specificities of the continent.

The distinction between “formal” and “informal” economy

The African economy, and in particular sub-Saharan, does not fit well with Western formalism in terms of commercial, legal and tax regulations.

After a study, the University of Dakar thus proposed a nuanced distinction of the informal economy, based on 6 criteria: tax status, access to credit, fixed place of practice, sincerity of accounts, registration with the competent authorities, activity size.

A typology taken up by the International Labor Office, which estimates that the informal sector provides 72% of jobs in sub-Saharan Africa, and is currently the source of more than 93% of new jobs created.

By way of comparison, the formal sector employs only 10% of the active population of the African continent.

A real parallel economy, which supports the poorest classes, in sectors such as crafts, small trade, fishing, etc.

The rise of the informal economy can in fact be explained by the low and uncertain average income in certain countries of the continent, where the gap is enormous with the most regulated professions, in health, administration, education or even insurance.

The “vicious circle” of the informal economy

For Pierre Jacquet, president of Global Development Network, the cost of tax evasion represented at least 3% to 10% of gross domestic product (GDP).

Safety valve against poverty and extreme precariousness, the informal economy also represents a threat to the growth of the poorest countries.

The sums brewed by actors in the informal sector are rarely reinvested in the legitimate economy, which cannot constitute a sustainable source of income and productivity.

To break out of this vicious circle, the public authorities encourage the formalization of the economy, through access to more efficient public services, and the application of clear rules, like the directives of the Organization for the Harmonization of Business Law in Africa (OHADA).

However, the transition still promises to be difficult, given the extent of the parallel economy in Africa and its anchoring in the mores of the most disadvantaged populations.