Investing in Africa’s Informal Economy: How Startups Are Unlocking a $1.4 Trillion Market

Africa’s informal economy, long dismissed as a shadow sector, is emerging as a $1.4 trillion goldmine for investors. This figure, while debated in context—whether as consumer expenditure in 2015 or potential productivity gains—reflects the sector’s vast untapped potential [1]. With 85.8% of jobs in sub-Saharan Africa tied to informal work and 40% of the continent’s GDP generated by unregistered enterprises [2], the informal economy is no longer a peripheral curiosity but a strategic frontier for innovation. Startups are now leveraging fintech and sector pivots to transform this fragmented landscape into a scalable investment opportunity.

Strategic Sector Pivots: From Survival to Scalability

The informal economy thrives on sectors like agriculture, retail, and services, where traditional infrastructure is lacking. Startups are redefining these spaces by addressing pain points such as supply chain inefficiencies and limited access to credit. For example, Nigerian agri-tech platforms like Twiga and Hello Tractor are digitizing smallholder farming, connecting informal producers to formal markets and financial tools [3]. Similarly, Kenya’s M-Pesa has demonstrated how mobile money can bridge the gap between informal traders and formal banking, enabling 80% of the population to access financial services [4].

A key pivot lies in urbanization. As 80.8% of informal employment shifts to cities [2], startups are capitalizing on urban demand for flexible services. Ghana’s Jobberman and South Africa’s Uber partnerships are streamlining gig work, turning informal labor into monetizable skills. These pivots are not just about digitization but about reimagining how informal actors integrate into the formal economy.

Fintech-Led Scalability: The Digital Catalyst

Fintech is the linchpin of this transformation. In South Africa, where the informal economy is valued at R1 trillion ($1.4 trillion) [5], startups like Lulalend and TymeBank are offering microloans and digital accounts to informal traders. By replacing cash with mobile wallets, these platforms reduce transaction costs and build credit histories for previously unbanked entrepreneurs.

The shift to digital is accelerating. A 2025 IMF study notes that 42.4% of Africa’s GDP in low-income countries is informal, with Sierra Leone’s informal sector alone contributing 64.5% of GDP [6]. Fintech’s role here is twofold: it formalizes transactions and creates data trails that investors can leverage. For instance, blockchain-based platforms like BitPesa are enabling cross-border payments for informal traders, bypassing bureaucratic hurdles and reducing costs by up to 70% [7].

Challenges and the Path Forward

Despite its promise, the informal economy remains underreported and underserved. Only 33% of informal workers in Kenya and Tanzania have access to formal financial services [2]. However, initiatives like the African Continental Free Trade Area (AfCFTA) are creating corridors for cross-border informal trade, while regulatory sandboxes in Nigeria and Rwanda are encouraging fintech experimentation [8].

Investors must also navigate cultural nuances. Informal markets prioritize trust and community over contracts, requiring startups to adopt localized solutions. For example, Ghana’s Mdundo music platform succeeded by partnering with informal vendors to distribute digital content via USB drives, blending analog and digital ecosystems [9].

Conclusion: A $1.4 Trillion Opportunity

Africa’s informal economy is no longer a “hidden” market—it’s a dynamic, digitally enabled ecosystem ripe for investment. By pivoting to sectors with high informal participation and deploying fintech to scale operations, startups are unlocking value that traditional models overlooked. For investors, the challenge is not just to fund these innovations but to build ecosystems that sustain them. As the IMF’s 2025 report underscores, formalizing the informal sector could add $1.4 trillion to Africa’s economy—provided the right tools and partnerships are in place [6].

Source:
[1] Africa's consumer market potential [https://www.brookings.edu/articles/africas-consumer-market-potential/]
[2] Pillar of Africa's Economy: A Focus on the Informal Sector's Role [https://www.africanleadershipmagazine.co.uk/pillar-of-africas-economy-a-focus-on-the-informal-sectors-role/]
[3] Reimagining Africa's economic growth [https://www.mckinsey.com/mgi/our-research/reimagining-economic-growth-in-africa-turning-diversity-into-opportunity]
[4] Supporting Africa's urban informal sector [https://blogs.worldbank.org/en/africacan/supporting-africas-urban-informal-sector-coordinated-policies-social-protection-core]
[5] South Africa's R1 trillion invisible underground economy [https://www.sagoodnews.co.za/south-africas-r1-trillion-invisible-underground-economy/]
[6] Africa's hidden economy and the path to formalisation [https://ethicalbusiness.africa/2025/05/23/out-of-the-shadows-africas-hidden-economy-and-the-path-to-formalisation/]
[7] Formalizing Africa's Informal Sector Through the AfCFTA [https://jpia.princeton.edu/news/formalizing-africas-informal-sector-through-afcfta-opportunity-economic-transformation]