A sweeping new report from the African Development Bank has put a precise and sobering figure on one of the continent’s most persistent structural challenges. Africa’s vast informal economy is costing the continent up to $125 billion annually in revenue that governments never collect, investment that never materialises and productivity that never reaches its potential.
The African Economic Outlook 2026, published by the AfDB at its Annual Meetings currently underway in Brazzaville, Congo, estimates that approximately 85 percent of employment across Africa is informal, offering workers limited job security and virtually no access to social protection. That figure alone paints a stark picture of how fragile the foundation of Africa’s labour market actually is.
The fiscal consequences are equally stark. The report estimates that moving 10 percentage points of GDP from the informal sector into the formal economy could yield up to 2.6 percentage points of GDP in additional tax revenue annually, a figure equivalent to roughly $75 billion. Each percentage point of GDP produced in the informal sector is associated with a loss of between 0.17 and 0.41 percentage points of GDP in tax revenue, losses that reflect both the narrowness of the effective tax base and the practical difficulty of capturing income and transactions generated by unregistered economic activity.
The report is clear about what formalisation would deliver beyond revenue. Firms that operate formally gain improved access to finance, stronger property rights and a more level competitive environment. Economies that reduce informality grow faster. The AfDB estimates that a 10 percentage point reduction in the size of the informal sector could increase annual GDP growth in emerging markets and developing economies by between 1 and 2 percent, gains driven by higher firm productivity, better access to credit and reduced market distortions.
The human cost of informality is just as significant as the fiscal one. Around 29.3 percent of employed people across Africa were categorised as working poor in 2024, earning less than $2.15 per day. Low-skilled workers and those in vulnerable informal employment are the most exposed when external shocks hit, whether those shocks come in the form of surging food and energy prices or global health crises. The 2022 spike in international energy and food prices pushed 15 million Africans into poverty. The COVID-19 pandemic pushed 43 million. In both cases, it was informal workers with no savings buffer, no social protection and no access to formal financial systems who bore the heaviest burden.
The report notes that the poorest 10 percent of African households spend an average of 36.5 percent of their budget on food and 5.2 percent on energy, making them acutely vulnerable to exactly the kind of price shocks the continent has experienced repeatedly in recent years.
Despite these challenges, the AfDB’s outlook on Africa’s growth trajectory remains measured but constructive. The continent’s economies are projected to grow at 4.2 percent in 2026, moderating slightly from 4.4 percent in 2025 before rebounding to 4.4 percent in 2027. The findings affirm continued resilience in the face of geopolitical tensions, tighter global financial conditions and supply chain disruptions, though the report makes clear that resilience built on an informal foundation has limits.
The Annual Meetings are being held under the theme Mobilising Africa’s Development Financing at Scale in a Fragmented World, and the formalisation agenda sits squarely at the heart of that discussion. Governments that cannot collect adequate tax revenue cannot finance development. Economies where most workers operate outside formal systems cannot build the institutional depth required to attract serious long-term investment.
Jaysonlive Analysis
The AfDB’s numbers reframe a conversation that African policymakers have had for decades without sufficient urgency. Informality has long been treated as a social challenge, something to be managed rather than transformed. The 2026 Outlook makes the economic case with a clarity that is harder to ignore. $125 billion in annual foregone revenue is not a peripheral issue. It is the single largest constraint on Africa’s ability to finance its own development.
The path forward is not simply a matter of registering more businesses or broadening the tax net. It requires building the conditions under which formalisation becomes attractive rather than burdensome, reducing compliance costs, improving access to credit for small businesses, strengthening property rights and ensuring that the services government provides in return for tax revenue are actually delivered. That is a governance challenge as much as an economic one. But the cost of not addressing it, measured in lost billions, persistent poverty and constrained growth, is one Africa can no longer afford to carry.
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