By Darius Spearman (africanelements)

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A recent report highlighted a deep economic crisis across the African continent (businessinsider.com). According to the market analysis published by Moody’s Ratings, eighty-eight percent of the Sub-Saharan African workforce remains informal (businessinsider.com). This means that nearly nine out of ten workers carry out their daily business without official registration (businessinsider.com). This widespread informality has a devastating effect on public finances.

The report reveals that continental governments fail to collect forty-one percent of their potential Value-Added Tax revenue (businessinsider.com). This fiscal challenge has real-world consequences for everyday citizens. When governments cannot raise sufficient revenue, they cannot build sturdy school buildings or fund modern healthcare clinics (businessinsider.com). Consequently, communities remain trapped in a cycle of underdevelopment. Understanding this crisis requires looking deep into history, beyond the immediate economic headlines.

The concept of the informal sector began in the busy streets of Accra, Ghana, during the early 1970s (wiego.org). Anthropologist Keith Hart noticed that rural migrants could not find formal work in government offices or factories (wiego.org). Instead of staying idle, these workers created their own economic paths. They worked as tailors, street vendors, and open-air mechanics to survive. Hart recognized that these individuals were highly dynamic and creative self-employed workers (wiego.org).

Soon after, the International Labour Organization sent a mission to Kenya in 1972 (ilo.org). They published a famous study that popularized his findings. The study introduced the term "working poor" for millions of people working in unregulated markets (ilo.org). In Kenya, these self-employed workers were known as the *jua kali*, which translates to "under the hot sun." Hart showed that the informal sector was not a sign of economic failure. Rather, it represented a vital system of survival and innovation (wiego.org).

The *jua kali* workers of Kenya proved that informal markets could drive local economies (ilo.org). These traders manufactured tools and repaired vehicles without any formal state support (ilo.org). They laid the groundwork for modern micro-enterprises. However, early planners failed to realize that this sector would become permanent. Decades later, the informal economy has grown to become the dominant system across Sub-Saharan Africa (ilo.org).

To find the root causes of this division, one must examine European colonial rule. Colonial authorities structured African economies for raw material extraction rather than local development (africaresearchinstitute.org). They did not want to foster organic local industries that might compete with European businesses (africaresearchinstitute.org). In Southern and Eastern Africa, colonial governments set up highly restrictive systems known as labor reserve zones (isj.org.uk).

They seized fertile ancestral land and forced the local population into crowded reservations (isj.org.uk). In addition, they imposed heavy cash taxes, such as the "hut tax," on African families. These measures destroyed self-sufficient agricultural communities. They forced Black men to migrate to European-owned mines and plantations for low wages (isj.org.uk, umich.edu). This oppressive system restricted where workers could live and separated families. The structural division of these economies served colonial masters perfectly. It kept local wages extremely low and suppressed competition (isj.org.uk).

African businesses could not grow because colonial laws favored foreign monopolies. This deliberate suppression of Black wealth created a massive gap in economic opportunity. Independent governments inherited these unequal systems in the 1960s. They struggled to build formal industries because they lacked necessary capital and infrastructure. This economic exclusion in Africa bears a strong resemblance to the labor exploitation faced by Black communities in the diaspora. In the United States, practices like redlining and unequal capital access created similar barriers to wealth building. This history mirrors the ways post-slavery labor systems trapped Black workers in cycles of poverty.

The greatest explosion of informal labor occurred during the economic crises of the 1980s and 1990s. Many African nations faced a major debt crisis after global commodity prices collapsed (ox.ac.uk). To survive, these governments had to ask the International Monetary Fund and the World Bank for emergency loans (fes.de). To receive these funds, governments had to accept strict conditions known as Structural Adjustment Programs (fes.de). These policies reflected the free-market ideas of the Washington Consensus (columbia.edu).

They forced states to cut public spending, eliminate protective tariffs, and privatize public utilities (fes.de, columbia.edu). This severe economic shift led to rapid deindustrialization across Sub-Saharan Africa. These harsh reforms devastated the formal job market. Millions of teachers, civil servants, and factory workers lost their jobs almost overnight. Lacking any public safety nets, these displaced workers had to enter the informal market to support their families.

The International Monetary Fund and the World Bank believed these reforms would spark growth (columbia.edu). Instead, they gutted the social fabric of many African nations. The forced removal of food subsidies and education funding pushed millions into absolute poverty (fes.de). Without options, highly educated citizens had to sell goods on the street to survive. The informal sector ceased to be a temporary safety net. It became the only available option for survival. Today, this rising debt crisis continues to impact modern public finances.

The massive size of the informal workforce creates a difficult challenge for modern tax collection. Sub-Saharan African countries have high corporate tax rates, with a regional median of thirty percent (businessinsider.com). This rate is notably higher than the global median of twenty-five percent. However, tax authorities struggle to reach the eighty-eight percent of the workforce operating informally (businessinsider.com). This situation creates an unfair economic dynamic that local business owners call "hunting in the zoo" (businessinsider.com).

Tax authorities cannot easily collect informal taxes, so they repeatedly tax the few registered businesses (businessinsider.com). This heavy taxation makes it extremely difficult for small, compliant businesses to survive or expand. This unfair system creates a hostile environment for formal businesses. When tax authorities repeatedly squeeze registered enterprises, they discourage formalization (businessinsider.com). Many small business owners choose to remain informal to avoid high tax burdens and complex regulations.

Furthermore, low tax collection rates harm the national credit ratings of African countries (imf.org, worldbank.org). Global rating agencies, such as Moody's, S&P Global, and Fitch, assess a country's ability to repay debts (imf.org). These agencies use standardized metrics that often fail to capture the unique realities of African markets (issafrica.org, worldbank.org). As a result, African nations face conservative credit ratings and a systemic "Africa premium" that increases borrowing costs (issafrica.org, worldbank.org). This forces governments to spend scarce public funds on high-interest payments instead of school buildings and hospitals. This lack of investment hampers efforts to achieve true economic justice.

The burdens of the informal economy do not affect everyone equally. In Sub-Saharan Africa, women face the most severe consequences of this economic model. According to the International Labour Organization, over ninety percent of employed women work in the informal sector (ilo.org). In non-agricultural employment, eighty-three percent of working women hold informal jobs, compared to seventy-two percent of men (ilo.org).

When agricultural labor is included, these figures rise to ninety-four percent for women and eighty-nine percent for men (ilo.org). These numbers show that informal work is the primary livelihood for almost all working women on the continent. Women in this sector typically work in highly precarious, low-earning positions, such as market trading and subsistence farming (ilo.org). They face a massive gender wage gap of twenty-eight percent within the informal economy (ilo.org). This gap is much higher than the six percent wage gap found in formal jobs (ilo.org).

Furthermore, women carry the heavy burden of unpaid domestic care work. Female traders face severe barriers to accessing formal financial services. Traditional banks often require collateral, which informal women workers rarely possess (ilo.org). Without access to formal credit, they must rely on informal savings circles or high-interest moneylenders. This systemic exclusion prevents female-led enterprises from scaling up. Consequently, women remain trapped in low-yield activities, bearing the heaviest weight of economic survival.

Total employment in Sub-Saharan Africa including agriculture.

In recent years, many governments have tried to expand tax collection by using modern technology. They have introduced biometric national identity cards, digital address systems, and electronic invoicing (businessinsider.com, semafor.com). Some states have even implemented taxes on mobile money transfers, which are widely used by informal traders (businessinsider.com, qz.com). However, these digital collection methods often face strong resistance from the public. High taxes on mobile transactions can drive informal traders back to physical cash.

This shift slows down progress toward financial inclusion and harms local businesses. The main obstacle to formalization is a deep lack of trust between the state and the people. Informal workers already pay various non-state fees, transport levies, and market charges to operate (lse.ac.uk). Yet, they receive almost no public benefits, healthcare, or municipal services in return. When governments demand taxes without providing public goods, informal workers see the state as an exploitative force.

This deep trust deficit has built up over several generations. For decades, state officials have viewed informal traders with suspicion. Municipal authorities often launch violent sweeps to clear street vendors from urban centers (lse.ac.uk). They confiscate goods and arrest workers without due process. When the state acts as an opponent, workers naturally resist tax demands. They prefer to operate entirely outside of the reach of the government.

Governments do not have to rely on punitive or extractive tax enforcement methods. Instead, they can adopt supportive pathways that respect the dignity and rights of informal workers. One successful approach is the cooperative enterprise model (thenews.coop). This system allows street vendors and small traders to combine their resources, gain bargaining power, and access group protections (thenews.coop). In addition, states can offer financial incentives to encourage registration.

Providing small business grants instead of high-interest loans can help micro-entrepreneurs cover licensing costs without falling into debt (wiego.org, nonprofitquarterly.org). Legal reforms must protect the rights of vendors to work in public spaces safely (wiego.org). They should not face harassment or eviction by municipal police (wiego.org). Finally, sector-specific mutual health funds can provide vital safety nets for informal workers. Programs in countries like Togo and Senegal have successfully offered healthcare access to informal associations (researchgate.net).

Furthermore, formalization should not be viewed as a tool for state extraction. It must be a pathway to economic empowerment and safety (wiego.org). When governments offer real benefits, such as legal protection, business training, and social security, workers will willingly register. True development requires transforming the state from an extractive tax collector into a supportive partner. Only then can African nations build resilient economies that benefit all citizens.

Darius Spearman is a professor of Black Studies at San Diego City College, where he has been teaching for over 20 years. He is the founder of African Elements, a media platform dedicated to providing educational resources on the history and culture of the African diaspora. Through his work, Spearman aims to empower and educate by bringing historical context to contemporary issues affecting the Black community.