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Nigeria’s economy is missing out on about \$8.8 billion in yearly revenue due to the country’s large informal sector, according to the African Development Bank’s (AfDB) 2025 African Economic Outlook report.
The report says that while informal businesses like street vendors, small farmers, and micro-enterprises provide many jobs and economic activity, most of the money they make stays outside the government’s tax system.
AfDB explains that this lost revenue could have been used to build roads, schools, hospitals, and other infrastructure. Across Africa, untaxed informal businesses cost countries around \$125 billion every year. Nigeria is among the countries with the highest losses, after South Africa, Algeria, and Egypt.
The report highlights that helping these small businesses join the formal sector could boost government revenue and support economic growth. “As informal enterprises move into the formal economy, they would access better conditions for business growth, expand the tax base, and increase overall revenue potential,” the report said.
AfDB also noted that while Nigeria has started digitalising tax processes, tax compliance is still low. The report suggests that Nigeria could learn from countries like Kenya, which has introduced systems like iTax, and Tanzania’s presumptive tax model to encourage small businesses to pay taxes.
The report also raises concerns about Nigeria’s rising public debt, which is projected to reach 47 percent of GDP by 2025. Despite the debt-to-GDP ratio being low compared to other African nations, the report warns that Nigeria spends a large share of its revenue on debt repayments.
This means that even with a relatively low debt ratio, the burden on the government is high because most of the money that should be spent on development goes to servicing debt.
The AfDB recommends that Nigeria focus on bringing more businesses into the formal sector to unlock revenue and build a stronger economy.
