Nigeria and South Africa Among Africa’s Biggest Losers as $125 Billion in Tax Revenue Slips Away
Africa is losing an estimated $125 billion in tax revenue annually due to the large informal economies prevalent across the continent, with Nigeria and South Africa among the hardest hit. This loss is significant as these funds could otherwise be used to finance crucial developmental projects and stimulate economic growth. The African Development Bank (AfDB) highlights that over 20% of working-age Africans are engaged in starting new businesses, yet many fail to transition into the formal economy, resulting in missed revenue opportunities.
The AfDB’s 2025 economic outlook reveals that the largest forgone revenues are concentrated in Africa’s biggest economies: South Africa stands to lose about $20.4 billion, Algeria $16.3 billion, Egypt $15.6 billion, and Nigeria $8.8 billion. These figures are likely underestimated due to incomplete data from all countries. The report attributes this shortfall to high regulatory burdens, weak entrepreneurial ecosystems, and structural barriers that drive many businesses underground into informal sectors, where taxation and economic oversight are minimal.
The informal economy, especially among Africa’s youth, represents a vast untapped economic potential. In Nigeria, many young people between 18 and 30 years old operate informal businesses such as kiosks, ride-hailing services, and cash-based operations that rely heavily on personal funds. Formalizing these activities would provide better business conditions, improve access to capital, and expand the tax base, thereby increasing overall government revenue and fostering more sustainable economic development.
Nigeria is currently moving forward with much-needed tax reforms aimed at overhauling outdated tax laws that date back to the colonial era. The country seeks to harmonize tax regulations to stimulate growth, reduce its fiscal deficit, and enhance competitiveness. Despite a low tax-to-GDP ratio of about 10% in 2023—one of the lowest worldwide—official estimates indicate a rise to 13.6%, with the government targeting an ambitious 18% in the coming two years.
The reforms are also expected to improve fiscal management, helping Nigeria reduce the high cost of debt servicing, which in 2022 consumed 97% of its revenue, to a more manageable 50%. Overall, the AfDB emphasizes that formalizing the informal sector is key to unlocking Africa’s economic potential, improving tax collection, and creating a more vibrant and resilient economy for its rapidly growing youth population.
Source: Business day