The informal sector, ubiquitous in African economies, embodies a paradoxical reality. On the one hand, it is a social shock by offering livelihood opportunities to millions of people excluded from the formal labour market. On the other hand, it escapes any fiscal and legal framework, thus depriving States of resources essential for their development.

In Senegal, as in many countries on the continent, attempts to formalize have so far resulted in very limited failures or results. However, behind neighbourhood shops and street vendors sometimes hide well-established businesses, generating a substantial turnover, but operating in complete opacity vis-à-vis the tax administration.

This dual face of the informal sector raises a crucial problem: how to reconcile economic inclusion with tax equity? Through this article, we will draw up a comprehensive overview of the informal economy in Africa and Senegal, analysing its causes, its implications and the policies implemented. Finally, we will propose pragmatic ways to address this phenomenon, with a view to a fairer, more inclusive and more sustainable economic model.

Panorama of the informal sector in Africa and Senegal

In Senegal, the informal sector consists of a wide range of structures:

• Micro-survivors: street vendors, artisans, small traders.
• Service providers: Hairdressers, mechanics, transporters, delivery agents.
• More structured but unreported enterprises: medium-sized sewing shops, garages, bakeries, shops generating a large turnover without being registered or tax registered.

This heterogeneity makes the regulation of the sector all the more complex. Contrary to some views, informality is not limited to subsistence activities. Many informal enterprises operate on a large scale while escaping tax, at the expense of tax fairness.

Deep causes of informality

The predominance of the informal sector in Africa is not a mere deliberate choice of economic actors. It is the result of a set of structural, institutional and social factors that make entry into formal education difficult or even counterproductive for some.

Administrative complexity and high formalization costs

One of the first barriers to formalisation lies in the cumbersome administrative procedures: registration, obtaining a trade register, membership in social security, etc. For many entrepreneurs, these approaches are long, expensive and not easily accessible, especially in rural areas.

Mistrust of public institutions

Some informal actors perceive the state as a tax predator rather than a partner. This mistrust is fuelled by past experience of abusive controls, corruption — the tax they see passing under their noses in the form of a luxury car that runs towards the beautiful neighborhoods — or lack of visible public service counterpart.

Low or non-existent public services

The lack of basic services (health, education, social security) for formal entrepreneurs reduces the value of contributing to tax. The link between tax citizenship and access to services is perceived as broken.

Limited access to finance and support

Informal enterprises generally do not have access to bank credit due to the lack of guarantees and accounting documents. This funding is often necessary to formalize, develop and grow in a sustainable manner.

Economic and social consequences

Maintaining a large informal sector has profound consequences for both states and citizens.

A major loss of tax revenue

The main cost of information to the State is the loss of tax revenue. Sometimes very lucrative companies escape taxation, which undermines the state's ability to finance infrastructure, social services and the redistribution of wealth.

Unfair competition for formal enterprises

Informal enterprises, which do not bear any tax or social contributions, may offer prices lower than those in the formal sector. This distorts market rules and discourages formalisation.

Generalised social insecurity

Workers in the informal sector do not have access to labour protections: no health insurance, no retirement, no security in case of job loss. They remain vulnerable to economic shocks, diseases or accidents.

An obstacle to economic planning

Without reliable data on real economic activity, it is difficult for governments to formulate effective policies. Informality blurs statistics, complicates the mobilization of national savings, and limits the scope of economic policies.

Failure of formalisation policies

Given the size of the informal sector, many African States, including Senegal, have tried various strategies to encourage the transition to formality. However, these initiatives have encountered several obstacles and have produced disappointing results.

Simplified tax systems that are not attractive

Devices such as the « micro-entrepreneur » or « Global Unique Contribution » (CGU) in Senegal aimed at reducing the tax and administrative burden on small businesses. However, most of these regimes did not attract massive membership. At issue: still complex procedures, a lack of communication, and especially the lack of real benefits perceived by informal operators.

Poor institutional coordination

Formalization approaches are often carried out by different ministries or agencies without effective coordination. This creates confusion among entrepreneurs, who do not know who to turn to, or what to do.

Insufficient monitoring and evaluation

Many programs lack evaluation or feedback mechanisms. The lessons of failures are not always drawn, which leads to repetition of the same mistakes or to devices that are poorly adapted to the realities of the field.

Forgetting non-tax incentives

Most policies have focused on tax relief without valuing the extra-fiscal benefits of formalisation: access to finance, public order, legal protection, etc.

Towards pragmatic solutions for progressive formalisation

In order to curb the sustained expansion of the informal sector, it is imperative to abandon punitive or exclusively fiscal approaches. A strategy must be adopted based on support, trust and mutual interest between the State and economic actors.