“Trade Fallback” and the Dual Economy Phenomenon in Africa

An old African proverb says: “When the lion does not hunt, the hyena will feed”. In many African economies, this proverb vividly captures a reality familiar to anyone who lives or works on the continent: when formal employment opportunities in the manufacturing or service sectors (the “lion”) are scarce, people turn to trade a primary source of income. This dynamic, which can be described borrowing a term from development economics as “trade fallback”, lies at the heart of Africa’s expanding informal economy.

The term “trade fallback” generally refers to a situation in which a country or firm loses access to its primary export market—whether due to tariffs, sanctions, or regulatory barriers—and is consequently forced to redirect its trade flows toward alternative destinations. When this concept is applied to domestic economic systems, a similar scenario emerges: the scarcity of productive opportunities in formal sectors compels individuals to turn to informal trading activities. As a result, the informal economy expands at the detriment of the formal one. This expansion creates a vicious cycle. Because informal activities lie outside the tax system, they contribute little to public revenue, prompting governments to impose heavier taxes on the relatively small formal sector. These higher taxes, in turn, erode the competitiveness of formal enterprises, pushing even more firms and workers into the informal circle. The outcome is a dual economy where a small, visible, and regulated formal sector coexists with a much larger, vibrant, yet largely invisible informal one.

The trade fallback in Africa is more than a survival mechanism. It is a structural feature of most African economies. Informal and small-scale trading activities sustain livelihoods, supply essential goods and services, and form intricate social and economic networks that connect communities across borders. Markets in cities and border towns are vivid examples of this resilience, linking producers and consumers despite weak industrial bases and limited formal employment creation. As a consequence, in most African countries, the informal sector accounts for well over half of total employment and serves as a crucial shock absorber during recessions, conflicts, and global crises such as the COVID-19 pandemic.

Yet, this resilience is constantly tested by deep structural barriers. Informal traders often lack access to credit, insurance, and reliable market information. They operate in an environment that offer little or no incentives to scale up or enter the formal economy. Women—who make up the majority of informal cross-border traders—bear a disproportionate share of these burdens.

This structural imbalance also has far-reaching implications for regional integration. While trade naturally emerges as a fallback in the absence of industrial or service-sector opportunities, its informal and fragmented nature makes continental initiatives such as the AfCFTA far more complex to implement, making it difficult to harmonize markets and establish a genuinely unified continental trading space. Without deliberate policies to integrate informal trade into formal structures, the promise of a single African market risks remaining only partially realized.

To break this cycle, African governments and regional institutions must recognize, legitimize, and empower informal trade as an integral part of their broader economic and fiscal strategies. This requires simplifying border procedures for small-scale traders, expanding their access to finance to enable business growth, and designing targeted support programs that facilitate their gradual transition to the formal economy. Equally crucial is the integration of small traders into regional value chains. For example, traders can be encouraged to form cooperatives or associations that pool resources, standardize products, and achieve economies of scale—allowing them to meet the supply and quality requirements of formal processing industries. At the same time, tax reforms should aim to broaden the revenue base without overburdening compliant firms, thus promoting progressive formalization and reinforcing the fiscal contract between states and citizens.

The trade fallback should not be seen merely as a symptom of economic weakness, but as evidence of Africa’s enduring adaptability and entrepreneurial drive. Yet, if left unaddressed, it risks perpetuating the dual structure of African economies and further weakening the fiscal resilience of their states. The challenge, therefore, is to transform informality from a condition of exclusion into a driver of inclusive growth and structural transformation. With coherent industrial policies, equitable taxation, and inclusive trade facilitation, Africa can ensure that when the lion hunts, the hyena does not merely scavenge for leftovers, but runs alongside it, drawing strength from a revitalized, more resilient, and truly integrated continental economy.