Nigeria and South Africa, the continent's two largest economies, face opposing challenges in relation to their informal sectors. While Nigeria needs to shrink and formalise its informal economy, South Africa needs the opposite: to allow it to grow as a safety net in the face of mass unemployment. The contrast reflects profoundly different historical trajectories and production structures.
In South Africa, only 171TDP3T of the labour force works in the informal sector, well below the African average of 581TDP3T. This limits the country's capacity to absorb the millions of people excluded from the formal market, especially in a region where unemployment exceeds 33%. Its highly concentrated and capital-intensive economic model has generated few opportunities for self-employment or small initiatives.
Nigeria, on the other hand, has 68% of its workforce in informality. This masks a high level of precariousness, with millions of workers without rights or access to public services. Although official figures reflect low unemployment, in reality underemployment and economic inefficiency abound. The scale of this informality prevents the state from collecting sufficient taxes and hinders the development of effective public policies.
Both countries need to rethink their approach. South Africa should make its economy more flexible and encourage entrepreneurship as a way to reduce inequality and unemployment. Nigeria needs to move towards progressive formalisation, supported by digital platforms and a more accessible tax environment. Examples such as Rwanda offer clues on how to do this.
The ISS study underlines that the informal sector can no longer be seen as a fringe of the system. It is a key to inclusion, governance and the future of work in Africa. But managing it requires specific approaches, based on the realities of each country.
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