The African Informal Sector: GDP Contribution vs Scale of Human Impact

The informal economy in sub Saharan Africa (SSA) tends to be measured as a share of GDP, counting its contribution to the national economy. By this metric, Nigeria has the most economically empowered informal sector, contributing over 60% to the GDP. On the other extreme, South Africa, has one of the smallest contributions to the GDP from the informal sector, but the highest unemployment rate.

Yet both Nigeria and South Africa are neck to neck when it comes to the title of “largest economy on the African continent”, or place in the top 3. So what does this tell us about these IMF metrics being used to measure the informal sector?

The human impact story is missing from the equations

South Africa might have one of the smallest informal sectors in terms of contribution to their GDP, but the number of people generating their income from the informal sector is almost as large as Tanzania, whose informal sector contribution is more than double, second only to Nigeria.

WIEGO’s research, from which the above employment figures are drawn, highlights the social impact and scale of the informal sector in human terms. Already, the informal sector’s employment opportunities are growing faster than the much smaller formal sectors in most major African economies. New graduates and working age adults still need to find a way to put food on the table.

Its not enough to simply look at GDP contribution when it comes to the complex value embedded (and untapped) in the informal economies of these nations. Where social safety nets are scarce, and systems variable in their functioning, the human and social impact of the informal cannot be ignored in development planning and policy design.

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