Africa’s informal economy is often described as a problem to be formalised. For a founder, it should also be understood as a distribution opportunity.
Nigeria illustrates the scale. The National Bureau of Statistics reported that 93 per cent of employed Nigerians were in informal employment in the second quarter of 2024. The precise number of people will change with the size of employment and the methodology used, but the commercial conclusion is unmistakable: a company that understands only formal employers and salaried workers understands a small part of the Nigerian economy.
The more interesting question is how to reach everybody else.
Informal workers are not one customer segment. They include traders, artisans, transport workers, small-scale producers, independent service providers and people operating businesses whose finances and employment relationships may never appear in the formal systems companies usually use for distribution.
Reaching them requires more than reducing a formal-sector product’s price and placing it on a mobile phone. The company must understand what people already need, how trust travels and who must benefit economically for the product to move through the market.
Begin with a need that already exists
The informal sector is too large and price-conscious for a company to spend carelessly trying to manufacture demand for something people do not consider important.
Every new product requires some education, but there is a difference between explaining a better way to satisfy an existing need and attempting to teach millions of people that they should develop an entirely new spending habit. The second task can consume enormous capital, particularly where discretionary income is limited.
A stronger starting point is to identify what people already have to do. They have to eat, communicate, move, receive and spend money, protect their livelihoods and respond to requirements imposed by government or the businesses with which they trade.
If regulation requires a particular action, the market already contains a reason to comply, although the product must still make compliance easier and worth paying for. If merchants already move money every day, a financial product can improve the safety, cost or convenience of behaviour that already exists. If people already purchase an alternative beverage, a new drink is competing for an existing occasion rather than inventing one.
The company should ask what constraint is already costing the informal customer time, money, risk or lost opportunity. The closer the product is to an urgent and recognised problem, the less money the business must spend persuading people that the category matters.
Do not begin by asking how to educate the informal market about your product. Begin by asking what the market is already trying to accomplish.
Price sensitivity does not always require the lowest price
Pricing matters greatly in the informal economy because customers feel the cost of a purchase immediately. However, price sensitivity does not mean the cheapest product must always win.
A higher-priced product can succeed when the value is clear and when the people responsible for distributing it share meaningfully in the economics.
Imagine that people are accustomed to buying an alternative drink for ₦100 and a company wants to introduce a beverage for ₦1,000. The difference cannot be justified by branding alone. The new product must serve an occasion, status, taste, quality or functional need strongly enough for a customer to regard it as worth ten times the familiar alternative.
The company must also think beyond the large distributor. Who is the final informal seller placing the product in front of the end customer? Why should this person recommend it, stock it or use scarce working capital to keep it available?
If the informal retailer earns a meaningful amount from each sale, the higher price creates an incentive to explain, display and distribute the product. The seller is no longer a passive endpoint in the supply chain; the seller becomes part of the company’s route to market.
This does not mean increasing price merely to fund commissions. The customer must still receive sufficient value. It means designing the economics so that the people who carry the product through the last mile benefit when it succeeds.
A company can avoid competing only on low prices when it creates more value for both the customer and the distributor.
Informal distribution already possesses trust
Many founders imagine distribution mainly through digital advertising, formal retail chains or a direct sales team. The informal economy often moves through different systems: market associations, cooperatives, agents, neighbourhood retailers, trade clusters, transport networks, religious communities and trusted individuals whose recommendations carry weight.
These networks may appear fragmented from outside, but they possess relationships and knowledge a new company does not have. The informal seller knows which product moves quickly, which customer buys on credit, when demand changes and what language makes a benefit understandable.
A business that respects this knowledge can build a stronger model than one that attempts to bypass the network immediately. Technology can improve ordering, payments, inventory, credit and visibility while local distributors preserve the trust and proximity on which adoption depends.
The company should ask how value already travels through the market. Who influences the purchase? Who finances inventory? Who absorbs the risk when a product does not sell? Who helps the customer when something goes wrong?
The answers reveal the actual distribution system.
Do not transfer every cost to the smallest participant
The informal economy is sometimes attractive to companies because participants have little bargaining power. That can tempt a business to push inventory risk, payment delays and operational costs onto the smallest distributors while keeping most of the upside at the centre.
That model may produce short-term reach, but it will not produce loyal distribution. People will move to whichever product gives them better economics, faster turnover or more dependable support.
If informal distributors are expected to educate customers, hold inventory, collect payment and protect the company’s reputation, their compensation should reflect the work and risk. The business should understand their cash cycle and avoid designing terms that look reasonable from a corporate office but are impossible for a small trader to sustain.
The strongest distribution network is not merely one with many agents. It is one in which the agents have a reason to remain productive.
Regulation can create a market, but usefulness must sustain it
Regulated sectors offer an interesting route into the informal economy because government requirements can create a common need. Tax, identity, payments, insurance, safety and employment rules may require individuals or businesses to take actions they would otherwise postpone.
But regulation alone does not guarantee adoption. If the product is confusing, expensive or unreliable, people will look for avoidance, shortcuts or an informal intermediary who can help them satisfy only the appearance of compliance.
The better opportunity is to turn the obligation into useful infrastructure. A compliance product should not merely help a business submit a form; it should create better records, reduce uncertainty and make the business more credible to banks, customers or larger partners. A digital-payment product should not only satisfy reporting requirements; it should make transactions safer and help the user establish a financial history.
The regulation creates the entry point. The additional value creates retention.
This is especially important when serving informal businesses that may distrust formal systems because their previous experience has been primarily extractive. The product should show that structure brings practical benefits rather than simply another cost.
Design for irregular income and small transactions
Informal work often produces income that is irregular, seasonal or received in many small transactions. A product designed around a fixed monthly salary may misunderstand the customer even when its headline benefit is relevant.
Pricing, repayment, savings and subscription systems may need greater flexibility. Customers may prefer small payments connected to transactions rather than a large monthly commitment. The company may need agent-assisted onboarding, offline functionality or support channels that do not assume formal documentation and constant connectivity.
These are not concessions to a lesser market. They are product requirements arising from how the market works.
The company should also examine the cost of serving small accounts. A product may appear affordable to the customer while becoming unprofitable to deliver because support, collection or compliance costs remain too high. Technology, group distribution and partnerships can reduce these costs, but the unit economics must be understood from the beginning.
Scale does not rescue a model that loses more money with every additional user.
The opportunity is to organise existing economic life
Africa’s informal economy does not lack activity. It contains enormous activity that is insufficiently connected to the systems through which capital, insurance, compliance, technology and larger markets become accessible.
The founder’s opportunity is not simply to make informal people formal. It is to make the work they already do more productive, visible, secure and economically valuable.
Begin with a need that already exists. Understand the constraint that makes the problem urgent. Design a price the customer can justify, but do not assume that winning requires being the cheapest. If the product carries a higher price, ensure that it creates higher value and shares enough of that value with the informal distributors responsible for moving it.
Then study the networks through which trust already travels. The route to millions of informal workers may not begin with a national advertising campaign. It may begin with thousands of small distributors who already possess the relationships the company is trying to buy.
Africa’s informal economy is not waiting to become a copy of the formal economy before it can be served. It is already a functioning market with its own needs, incentives and channels.
The companies that understand those systems will not merely sell cheaply to a large population. They will build with the people who already know how that population buys.
Leave a comment