Unravelling the Nexus Between the Informal Sector, Financial Sector, and Real Sector in Sub-Saharan African Countries: The Moderating Role of the Informal Sector in the Finance–Growth Relationship

Olajide O. Oyadeyi and Oluwadamilola Adeola Oyadeyi
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Olajide O. Oyadeyi: Regent College London
Oluwadamilola Adeola Oyadeyi: HPV Consortium, College of Medicine, University of Ibadan

A chapter in Economic Transformation in Sub-Saharan Africa, Volume I, 2026, pp 155-202 from Springer

Abstract: Abstract The imperative to advance sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all, in accordance with Sustainable Development Goal (SDG) 8; the necessity to construct resilient infrastructure, encourage inclusive and sustainable industrialisation, and stimulate innovation as delineated in SDG 9; the requirement to render cities and human settlements inclusive, safe, resilient, and sustainable as specified in SDG 11; and the obligation to ensure responsible consumption and production patterns as articulated in SDG 12, remain a priority for Sub-Saharan African (SSA) nations. This chapter elucidates the relationship among the informal sector, often referred to as the ‘shadow economy’, the financial sector, and the real sector in reshaping the African narrative to attain the continent’s aspired economic change. The informal sector, which accounts for approximately 60 percent of businesses in SSA, functions as a crucial buffer against unemployment and provides opportunities for economic participation, blurring the lines between formal and informal economies. The financial sector is vital for the economic progress of the SSA region. This is because of its intermediation role between surplus and deficit units. Using data from 48 SSA countries, this chapter used descriptive and econometric methods to examine this nexus. The results indicate that the substantial scale of the informal economy hinders real sector transformation in Sub-Saharan Africa. Moreover, by serving as a moderating force, the informal sector limits the impact of the financial sector’s contributions to the economic transformation of the real sector, since actions inside the underground economy remain unrecorded in the official financial system. As a result, this chapter looks at the ways to provide a transition framework from informality to formality. In addition, the chapter discusses novel approaches and actionable policies that can facilitate this transition, casting light on pathways to greater economic inclusion and growth. The chapter hopes to provide valuable insights for policymakers, researchers, and practitioners who seek to leverage the informal sector’ s potential as a driver of sustainable economic development in SSA.

Keywords: Financial development; Inclusive and sustainable industrialisation; Informal sector; Real sector; Shadow economy; Sustainable development goals; Sustainable economic growth (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-77821-6_6

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DOI: 10.1007/978-3-031-77821-6_6

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