Can the Informal Economy Drive the Next Wave of Innovation in Africa?

It's not a food for thought. It's an actual question 🙂🙂🙂

Hallo, Dear Innovator 😉😉

A happy weekend to you and yours!

Without further ado, let’s get down to business. We weren’t joking 😏 about finishing the year strong…

Follow the hand!! 👇👇

In many African nations, the informal sector accounts for more than 80% of employment and contributes a significant portion of the GDP (gross domestic product) each year. In case you don’t know, the GDP is the total value of goods and services produced within a country in a year 💡

Essentially, the informal sector includes anyone engaged in economic activity without formal contracts, traceable tax contributions, or social protection.

To put things into perspective, domestic workers, casual labourers, informal transport providers (motorcycle/taxi operators), freelancers (including freelance tech developers), unregistered service providers (hairdressers, repair technicians), informal retailers (small shop owners or hawkers), and street performers and entertainers (musicians, dancers)—in many African countries, these people are the ones running the economy and employing 💼 the majority of the workforce.

Hmmmm.

At the height of African tech adoption in 2021/2022, almost every new fintech solution was driven by the mantra ‘bank the unbanked.’ Although these campaigns were mostly successful, they also ended up creating multiple accounts for people who didn’t need them. Essentially, they were banking the already banked! 😔😔

If something as essential as a tech-based financial service provider—unrestricted by physical location—struggles to be adopted in the rural parts of African countries, how much harder would it be for other tech-based solutions that aren’t perceived as immediate needs by the average person? 🤔🤔

So, here’s the million-dollar question:

Can we tap into the power of the unregulated, yet massive informal economy in African countries without first requiring them to open a bank account? 👀 Is formalising them the only option?

It all starts by identifying and understanding the intersection between their needs, the systems they are currently used to, and the limitations that affect them. It’s safe to say that tech innovators may struggle to create solutions for the informal sector without a deep understanding of these factors and a clear game plan 💡 to address them.

Informal service providers and workers often face unique challenges—such as irregular income, lack of social security, and limited access to financial services that could boost their businesses.

Solutions that address these issues include micro-insurance products, flexible loan schemes, or savings tools designed for irregular incomes. By focusing on pain points rather than assuming a one-size-fits-all solution, tech innovators can create products that genuinely resonate with this vast sector.

Other solutions that come to mind are geolocation-based service matching, where geolocation technology is used to match informal workers with local job opportunities and service requests, just like TaskRabbit connects users with local freelancers for various tasks. Or community-driven crowdsourcing platforms, tailored to specific niches.

Platforms that promote a shared economy, where individuals can rent tools, spaces, or services, could empower informal workers to reduce their upfront business costs. For example, equipment-sharing platforms for small-scale farmers or service providers like repair technicians could allow them to access high-quality tools without needing to own them. Fleet, the laptop-leasing company, is doing well on this front.

Also, rather than formalising the entire informal sector, providing simplified digital tools that make regulatory compliance easier (like readily available tax services or platforms to access simplified legal services) could help informal service providers engage with formal systems at their own pace 😍. These tools should be designed with low literacy levels in mind and in multiple local languages.

Dear Innovator, the possibilities and opportunities are endless 💯💯 Quit leaving money on the table!

The informal economy could be the next frontier of innovation—if we’re willing to meet them where they are 💪💪

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See you back here on Wednesday!