The informal economy is gaining attention as a significant contributor to employment and GDP, particularly in Nigeria. Tope Fasua highlights its crucial role in a recent analysis, noting that many businesses operate without formal registration, reflecting a broader trend toward informality [9824b892]. On September 3, 2024, Moniepoint, a fintech company, organized a symposium to discuss the implications of this trend, emphasizing the need for accurate data on the informal sector, which poses challenges for the National Bureau of Statistics [9824b892].
Historically, Nigeria's economy has remained largely informal due to a lack of trust in government and systemic issues. In contrast, South Africa has benefited from stronger ties with European nations, aiding its technological and economic advancement [9824b892]. The Nigerian government is attempting to formalize businesses by encouraging registration and tax compliance, but the rise of neobanks and cryptocurrencies presents challenges to traditional banking systems [9824b892].
The informal economy is characterized by cash transactions and unregistered businesses, which complicate tax collection efforts. As education shifts towards online platforms, the necessity for traditional formalization diminishes, leading to questions about the future of governance and public good in increasingly informal economies [9824b892]. The implications of a growing informal sector raise concerns about the ability of governments to collect taxes and provide essential services, as informality continues to expand [9824b892].
Startups are leveraging online apps to bridge the gap between citizens and the unorganized sector, providing opportunities and benefits to the informal economy [a680444e]. Examples include Uber, TaskRabbit, and iGaming apps, which connect individuals with job opportunities in the gig economy. These platforms offer flexible work schedules and safety measures, aiming to tap into the potential of the informal sector while addressing issues of exploitation and inequality [a680444e].
Dr. David von Rosen-von Hoewel argues that the next fintech unicorn will likely emerge from innovations that facilitate small cash payments in the informal economy. While major tech companies are advancing in online payments, there is a unique opportunity for agile European startups to dominate this space, as the informal economy remains resistant to digital transactions [e738ebfa].
The shadow economy, estimated to be worth trillions globally, is a significant part of this discussion. In the U.S., it is estimated to account for about 10% of the GDP, generating $2.5 trillion in economic activity. This sector includes unreported economic activities, such as cash exchanges for goods and services, and poses challenges for tax collection and worker protections [c2b147e5]. Properly accounting for this economy could enhance GDP figures and provide insights into employment rates, but accurately measuring it remains a challenge due to its hidden nature [c2b147e5].