Nigeria loses an estimated $8.8 billion annually due to the size and scope of its informal economy, according to the African Development Bank’s (AfDB) 2025 African Economic Outlook report.
The report highlights that while informal businesses contribute meaningfully to employment and economic activity, their exclusion from the tax net results in significant revenue shortfalls. This forgone revenue could otherwise be used to finance key development priorities across the country.
The AfDB estimates that across 46 African countries, a total of $125 billion in potential tax revenue is lost each year due to informal sector activity. The largest losses are recorded in the continent’s biggest economies—South Africa ($20.4 billion), Algeria ($16.3 billion), Egypt ($15.6 billion), and Nigeria ($8.8 billion).
“Informal enterprises such as street vendors, smallholder farmers, and microbusinesses dominate Africa’s economic landscape but remain largely untaxed,” the report noted. “Formalizing these businesses would expand the tax base, improve business conditions, and unlock development financing.”
The report identifies the lack of documentation and irregular nature of informal businesses as key challenges for tax collection. It, however, pointed to successful initiatives in other African countries—such as Kenya’s iTax system and Tanzania’s presumptive tax model—as potential examples for Nigeria to adopt.
While Nigeria has made some progress by digitizing aspects of its tax administration, compliance remains low, according to the report.
The AfDB also flagged Nigeria’s mounting debt concerns. It projects that about 75 per cent of the country’s government revenue will be spent on debt servicing in 2025, despite a relatively moderate debt-to-GDP ratio of 47 per cent.
“Even with lower debt-to-GDP ratios, countries like Nigeria can face severe fiscal stress when most of their revenue is tied up in interest and amortization payments,” the report stated.
Total debt servicing across Africa is projected to reach $89 billion in 2025, over half of which is owed to private creditors. Rising global interest rates and currency depreciation continue to threaten fiscal sustainability across the continent.
In Nigeria’s case, debt pressures are compounded by inflation, which spiked to 33.2 per cent in 2024 due to fuel subsidy removal and naira depreciation. The Central Bank responded by raising the benchmark interest rate to 27.5 per cent.
Public debt jumped from 41.5 per cent of GDP in 2023 to 52.3 per cent in 2024, driven by increased borrowing and a weaker currency. Still, the fiscal deficit narrowed slightly to 3.9 per cent of GDP, buoyed by higher non-oil revenue.
The AfDB urged Nigeria to focus on expanding domestic revenue, reforming the tax system, closing loopholes, and improving public spending efficiency. These measures, it said, are essential to reducing the country’s reliance on debt and ensuring long-term fiscal stability.
Ultimately, the report stressed that formalizing the informal economy is a crucial step toward unlocking revenue that can power inclusive growth and national development.
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