By Anthony Muchoki | January 2026
I stood in Nyahururu market last month watching a potato trader move what must have been 400,000 Kenyan shillings in worn notes from one plastic bag to another. She was simultaneously purchasing stock from three suppliers, managing credit for a dozen regular customers, calculating exchange rates against the dollar, and negotiating with a retailer from Nairobi—all without touching a mobile phone, without a receipt. Her economic activity was happening at high velocity, generating employment, feeding families, building capital. None of it would appear in Kenya’s GDP figures. Most importantly, she seemed entirely unconcerned about this invisibility. The formal economy, in her estimation, had nothing to offer her that the informal one did not already provide, except complications.
This scene repeats across Africa hundreds of millions of times daily. A cocoa merchant in Ghana moving millions of Cedis through a network that predates the Bank of Ghana by decades. A soybean farmer in Tanzania’s Morogoro region, part of AGCOT’s agricultural corridors, settling transactions in cash and converting earnings into cattle and land. A spice trader in Ethiopia’s informal markets. An import merchant in Lagos. A gold dealer in Kinshasa. They are not economic failures or remnants of a pre-digital era. They are not, as development discourse often frames them, “financially excluded.” They are the primary circulatory system of a continental economy that central banks cannot adequately measure—and therefore cannot wisely govern.
An analysis of central bank data from 50 African nations covering 2020–2024 reveals something policymakers would prefer to ignore: the continent’s formal banking system is an island in a sea of cash. More precisely, it is a island of theoretical measurements in an ocean of actual transactions. In Nigeria, the Central Bank reports that over 94% of currency in circulation exists outside banks—N4.29 trillion of the N4.56 trillion in total circulation. In Sierra Leone, it is 93.9%. In Ghana, despite aggressive monetary tightening and inflationary pressures that should have driven people toward banking, currency in circulation surged 60% year-on-year to GH₵71.6 billion, with the vast majority remaining outside the banking system. Zimbabwe, Sudan, Zambia, Uganda—the pattern is consistent and growing. This is not a bug in the system; it is the system itself. It is where actual Africans actually conduct their actual economic lives.
The Policy Blindness That Shaped a Continent
What makes this pattern particularly damning is not the existence of the informal economy—we have always known it was large. World Bank estimates have suggested it comprises 30-65% of GDP across different African nations for decades. What is damning is our continued policy architecture that assumes it doesn’t exist. We design monetary policy, tax systems, and development strategies as though Africa’s economy is what central banks can see and measure, when in fact central banks see perhaps 40–60% of it—in some cases far less.
Nigeria’s currency redesign in 2023 represents the clearest case study of this policy blindness. The Central Bank of Nigeria explicitly designed the policy to “mop up” excess liquidity and force the informal economy into the banking net. It was premised on a hypothesis that the informal economy was a pathology—that cash was the disease and digitalization the cure. The policy assumed that scarcity of physical currency would drive economic actors into the banking system. What actually happened was far more instructive: initial scarcity was followed by rapid, even aggressive, cash velocity as the informal sector developed parallel mechanisms for clearing and settlement. By October 2024, after the crisis had supposedly taught Nigerians the dangers of holding cash, COB hit an all-time high. The informal economy had not been forced into banks. It had been forced to become more efficient at remaining outside them.
This tells us something fundamental about the nature of economic behavior that our policy class has not yet internalized: people are not informal because they lack access to formal systems. They are informal because the formal system does not serve their interests. A trader who can move millions of naira in cash, extend credit to 50 customers from memory, and operate with transaction costs of near-zero—because she processes cash among people she knows—is not economically irrational for rejecting a bank account that costs her money to maintain, offers negative real interest rates, provides no privacy, and exposes her to tax enforcement.
Kenya’s Finance Bill of 2024 made this diagnosis clearer still. When the government attempted to tax digital transactions more aggressively—seeking to capture more of the growing digital payment ecosystem—the response was swift and instructive: citizens and SMEs retreated into cash. The policy had implicitly acknowledged that the formal economy was losing share to digital payments and sought to tax what was being formalized. The result: citizens responded by refusing to formalize. More cash came out of banks. Central banks issued more currency to compensate. Inflation accelerated. The real economy contracted. Policymakers responded to this contraction with tighter monetary policy that only further incentivized cash hoarding as a store of value.
We have constructed a financial system that systematically punishes formalization and systematically rewards informality. Then we wonder why Africa remains informal.
The Ghost GDP and the Fiscal Trap
The economic activity settled in cash—what this analysis terms the “Ghost GDP”—is staggering in scale. Consider the specific numbers:
Nigeria’s informal sector is estimated at 57-65% of GDP. With official GDP around $375 billion, the missing economic value is over $200 billion. Tanzania’s informal economy represents 44.7% of GDP, implying roughly $35 billion in unmeasured economic output. In Zimbabwe, where official statistics are particularly unreliable, the shadow economy exceeds 60% of measured GDP. South Africa, despite the most sophisticated financial system on the continent, has a shadow economy of approximately 29% of GDP—roughly $116 billion in unmeasured activity.
What does this mean in practice? It means that when the International Monetary Fund assesses Tanzania’s debt sustainability, it uses a denominator (GDP) that systematically understates the nation’s true economic capacity. It means that when investors evaluate Kenya’s fiscal sustainability, they are working with incomplete information. It means that when the World Bank designs lending programs, it is designing for an economy that is substantially smaller than the actual economy being lived in by actual Tanzanians, Kenyans, and Nigerians.
But there is a deeper trap embedded here, one that particularly affects agricultural countries: the revenue-to-GDP ratio becomes genuinely low not because the state is poorly governed but because the state literally cannot tax the Ghost GDP. You cannot tax transactions in cash between people operating outside formal registration. You cannot tax a farmer who sells maize to a trader for cash. You cannot tax a trader who sells to a retailer for cash. You can only tax the formal sector—the exporters, the large agribusinesses, the few commercial farms that are formally registered.
So what happens? Governments over-tax the formal sector to compensate. Kenya’s various proposals for wealth taxation, digital transaction taxes, and income tax increases are all, implicitly, attempts to capture revenue from the only part of the economy that is visible. The result is entirely predictable: the formal sector becomes less profitable than the informal sector. More economic activity retreats into shadow. The tax base shrinks further. Government is forced to borrow more, or print more money, or cut services. In the case of sub-Saharan Africa over the past decade, it has done all three.
This is the fiscal trap that much of the continent is locked into. It is not a result of corruption or misgovernment, though those certainly exist. It is a structural result of building a fiscal system on a financial infrastructure that is incapable of measuring or taxing the actual economy.
The Agricultural Dimension: Where Theory Meets Terra
This problem manifests with particular acuity in agriculture, the sector where I now focus my professional work at AGCOT—the Agricultural Growth Corridors of Tanzania. Across East Africa’s agricultural value chains, the cash economy is not a peripheral phenomenon. It is foundational.
Consider the structure of Tanzania’s agricultural exports—soybean, cashew, cotton, tobacco. The farmers who produce these crops—the smallholders who comprise perhaps 80% of agricultural output—are paid in cash at the farmgate. A soybean farmer in the Mbeya region receives payment in Tanzanian shillings from a local aggregator. That aggregator has received payment in Tanzanian shillings from a processor. The processor may export and receive foreign exchange, but the linkage between the farmer and foreign markets is mediated entirely through cash transactions at multiple points.
This is not inefficiency. This is rational economics. The cost of requiring a farmer to have a bank account, to deposit proceeds, to apply for credit, to navigate loan documentation—these costs are often higher than the margins available in farming. A smallholder farmer growing potatoes in Kenya, earning perhaps 50,000 shillings per season, will not formalize through a bank if banking costs 5,000 shillings per year in fees alone.
Yet our agricultural transformation programs increasingly assume a formalized, digitalized, banked farming population. We design supply chain finance mechanisms that require collateral registries and formal title deeds. We create farmer input credit schemes that assume access to bank accounts and digital payment systems. We encourage farmer aggregation and cooperative models that assume ability to access digital payments and formal credit. We promote agricultural extension through mobile platforms, assuming farmers have smartphones and digital literacy.
Meanwhile, the real farmer—the one who actually feeds the nation—settles in cash, builds capital in real estate and livestock, operates a multi-million-shilling business entirely off the books. She is far more economically sophisticated than policy assumes. She simply operates in a different economy, one that central banks and development banks do not see.
The Shadow Titans: Wealth Beyond the Books
The narrative that the informal economy is synonymous with poverty is incomplete and misleading. The data points toward a different reality: the existence of what this analysis calls “Shadow Titans”—High Net Worth Individuals (HNWIs) whose substantial wealth remains unrecorded in official statistics.
In West Africa, cocoa merchants operate multi-million dollar trading businesses entirely in cash. A single cocoa trader in Ghana might move tens of millions of Cedis through informal clearing networks annually, generating capital that flows into real estate, offshore accounts, and foreign currency reserves—never appearing on a personal income tax return. In Southern Africa, gold dealers in Zimbabwe and Zambia operate similarly. The “Gold Mafia” investigation by Al Jazeera revealed how hundreds of millions of dollars in gold proceeds are laundered outside formal banking systems, representing wealth flows in the billions that simply do not appear in national accounts.
In East Africa’s real estate markets, particularly in Nairobi, Lagos, and increasingly Dar es Salaam and Kampala, luxury properties are transacted frequently in physical currency. The FATF’s grey-listing of Kenya explicitly cited the real estate sector as vulnerable to money laundering via cash transactions—a vulnerability that exists precisely because of the scale of unbanked wealth. A 500-million-shilling property in Nairobi’s Westlands might be purchased with cash, creating visible wealth (the property) but invisible income (the sale), perfectly legal but entirely unrecorded.
Trade misinvoicing in mineral sectors represents another massive leak of recorded wealth. The Africa Wealth Report 2024 tracks formal wealth, but misses billions lost to under-declared exports in mining sectors across SADC countries. Tanzanite, diamonds, gold—all are subject to systematic under-declaration at source, with proceeds captured by traders and dealers who operate outside formal systems.
The implication is clear: Africa is richer than its books suggest. But African states are correspondingly poorer, because they cannot tap this wealth for public investment.
Regional Patterns: A Continental Mosaic
The phenomenon manifests differently across regions, revealing the diverse drivers of cash-based economies:
West Africa: The Liquidity Trap
Ghana’s experience in 2024 is particularly instructive. Despite headline inflation reaching 23.8% and sharp Cedi depreciation, currency in circulation expanded by 60% year-on-year. The “Fisher Effect”—where rising prices require more cash for transactions—is partly visible here. But the deeper driver is sectoral: Ghana’s cocoa sector, informal gold trading (the Galamsey sector), and agricultural exports remain almost entirely cash-based. As inflation erodes the Cedi, demand for cash as a tangible asset (relative to Cedi savings) intensifies. The informal trader prefers holding physical cash to holding Cedi deposits earning negative real interest rates.
Sierra Leone presents an even more extreme case, with COB constituting 93.9% of total currency in circulation—implying that the banking sector essentially services government, NGOs, and importers, while the general populace operates in a parallel cash economy. The Central Bank of Sierra Leone’s monetary policy transmission mechanism is essentially severed by this lack of intermediation. Rate changes by the central bank have almost no impact on the savings and investment decisions of the broader population.
East Africa: The Digital Paradox
Kenya presents perhaps the most interesting case because it is simultaneously Africa’s digital financial services leader and one of its most cash-dependent economies. The Central Bank of Kenya’s 2024 Annual Report shows cash in circulation increasing 5.6% to KSh 333.8 billion—growth in a supposedly digital economy. More tellingly, withdrawals from banks outpaced deposits, indicating net leakage from the formal system.
M-Pesa, Kenya’s celebrated mobile money platform, has digitalized velocity but not settlement. A trader uses M-Pesa to receive payments from customers, then withdraws cash to pay suppliers, manage credit, and settle in the informal networks that comprise her ecosystem. Digital tools facilitate transactions, but cash remains the ultimate settlement asset and store of value. The aggressive taxation of digital transactions in the Finance Bill of 2024 only accelerated this pattern—if digital transactions are taxed and cash is not, rational economic actors retreat to cash.
Ethiopia, with its shadow economy estimated at 50.2% of GDP and a population exceeding 120 million, grapples with a monetary challenge of a different scale entirely. The Birr circulates within closed loops of informal trade. The Hundi system (Ethiopia’s equivalent to hawala) manages diaspora wealth transfers and trading elite capital completely outside the National Bank of Ethiopia’s purview. Government attempts at demonetization to force money into banks have resulted in temporary deposit spikes followed by return to cash hoarding.
Tanzania and Uganda, both resource-rich in different ways, show similar patterns. Tanzania’s artisanal gold mining sector operates almost entirely in cash. Uganda’s agricultural export sectors settle predominantly in cash at the producer level. Both nations report steady expansion in currency in circulation, confirming that central banks must continuously expand the money supply to service an expanding informal economy that has no interest in being banked.
Southern Africa: Commodity Cycles and Dollarization
South Africa, despite having the continent’s most sophisticated financial system, maintains a substantial cash economy driven by the “Township Economy”—spaza shops, the informal taxi industry, street trading, informal services. The South African Reserve Bank reports cash in circulation continuing to grow relative to nominal GDP, contradicting the narrative of a digitalizing economy. The grey economy systematically attempts to evade SARS scrutiny through cash transactions.
Zimbabwe represents monetary dysfunction at its extreme. The Reserve Bank of Zimbabwe introduced the Zimbabwe Gold (ZiG) in April 2024, marking the sixth currency reform in two decades. Yet the economy remains heavily dollarized. “Currency outside banks” in Zimbabwe effectively refers to US dollars held in households—”mattress banking” on a national scale. These holdings, estimated in the billions, far exceed the central bank’s official reserves. The government can issue currency, but cannot force its population to use it as a store of value when an alternative (the US dollar) exists and is demonstrably more stable.
Why Technology Cannot Fix a Trust Deficit
Much policy discussion around solving the cash problem focuses on technology: Central Bank Digital Currencies (CBDCs), mobile money platforms, blockchain-based payments. Nigeria’s eNaira, explicitly designed to absorb the informal economy, provides the clearest cautionary tale. Adoption has been sluggish precisely because the informal sector prefers the anonymity of cash to the traceability of a CBDC. You cannot tax a cash transaction. You can monitor (and potentially tax) a digital transaction. From the perspective of someone operating in the informal economy, this is not a technical limitation but a feature. CBDCs solve nothing if the root issue is a trust deficit.
That trust deficit has multiple sources. During Nigeria’s cash crunch of 2023, citizens were unable to access their own deposits when banks ran out of physical currency. This was not a distant policy failure. It was a direct, personal experience of the banking system failing to deliver on its basic promise: safe storage of value. The memory of such failures does not fade quickly. When people ask themselves “Should I keep my savings in a bank or in cash?” after experiencing deposit unavailability, they are not being irrational. They are responding rationally to demonstrated failure of the formal system.
Similarly, the persistence of negative real interest rates in most African economies means that formal savings destroy wealth. A Tanzanian keeping Tanzanian shillings in a bank earning 5% interest when inflation is running 8% is experiencing wealth destruction. Keeping cash experiences the same destruction, but at least cash offers anonymity and security from institutional failure. From a rational wealth-preservation perspective, cash is superior.
Technology cannot fix these incentive structures. CBDCs, blockchain payments, and mobile money all require restoration of underlying trust in the institutions managing them. Without that trust—without real positive real interest rates, without genuine financial security, without proportionate taxation, without transparent governance—technology is merely a tool for better surveillance of activities that economic actors are rationally choosing to hide.
The Agricultural Transformation Agenda: Meeting People Where They Are
Working on agricultural transformation in Tanzania through AGCOT’s agricultural corridors has clarified for me that sustainable development cannot be built on the assumption of financial formalization that is not actually occurring. Tanzania’s agricultural corridors will not develop by forcing smallholders into digital payments they do not want and cannot afford. They will develop by understanding and working with the cash-based value chains that actually exist, making them more efficient at the margins where efficiency matters, and more transparent where transparency matters for public objectives like food security and export competitiveness.
This requires a fundamental reframing of agricultural policy around three principles:
First: Meet the Farmer Where She Is
A potato farmer in Iringa earning 30 million shillings annually does not need to become a “digital farmer” using fintech credit platforms. She needs to sell her potatoes for a fair price, receive payment reliably, and be able to invest in improved inputs. If she does this through cash relationships with aggregators she has known for years, this is not a policy failure. It is successful farming.
Agricultural policy should support efficiency improvements in these cash relationships—better aggregation, more transparent pricing, improved storage and logistics—rather than attempting to digitalize relationships that are functioning adequately within their current form.
Second: Tax at Scale, Not at Source
Rather than attempting to tax smallholder farmers (most of whom operate below taxation thresholds and whose administrative costs of compliance exceed likely tax collection), focus taxation on the points where cash is concentrated: export borders, commodity exchanges, processing facilities, major trading hubs. A single export promotion organization can ensure accurate reporting of soybean exports; individual farmers cannot be effectively taxed without administrative capacity that is simply not available.
Third: Regulate Outcomes, Not Structures
If the policy objective is food security, it should be regulated at the outcome level: ensuring adequate domestic food availability, fair prices for consumers and producers, environmental sustainability. It should not mandate particular structures (farmer cooperatives, formal financing, digital payments) that are actually less efficient than existing informal arrangements for many actors.
The Path Forward: Acknowledging Structural Reality
Several concrete policy reforms flow from this analysis:
Monetary Policy Realignment: Central banks should cease attempting to eliminate or minimize currency outside banks through coercive means. Demonetization, currency redesigns, and shock therapy approaches have uniformly failed because they ignore the structural drivers of cash demand. Instead, policies should focus on making banking genuinely attractive: positive real interest rates, lower transaction costs, genuine security, and proportionate regulation.
Agricultural Finance Innovation: Rather than replicating Western financial inclusion models (which assume bankability and digital capacity that doesn’t exist), agricultural finance should evolve through agents, aggregators, and localized mechanisms that operate within cash-based value chains while providing improved access to credit and risk management tools.
Fiscal Architecture Redesign: Tax systems should be redesigned around what is taxable at reasonable administrative cost, not around an ideal of comprehensive taxation of all economic activity. Focus taxation on formal sector, trade borders, and major commercial activity where capacity exists to collect efficiently. This will reduce over-taxation of the formal sector and reduce incentives for formalization to occur, since the formal sector will no longer be disproportionately burdened.
Statistical Capacity Investment: Rather than assuming official GDP measures are accurate, invest in better measuring the informal economy. Tanzanian statistical agencies should conduct regular surveys of informal sector activity, creating better baselines for policy-making. This measurement itself is not taxation; it is understanding.
Trust Restoration: Most fundamentally, central banks and finance ministries must acknowledge that their legitimacy with the general population is impaired. Currency redesigns, negative real interest rates, deposit freezes, and aggressive taxation have all eroded trust. Restoring that trust requires demonstrable changes in institutional behavior, not just promises of future digitalization.
Conclusion: The Vaults We Cannot See
The vaults of Africa’s central banks are full of numbers. The vaults of Africa’s people are full of cash. These are not separate vaults in separate economies—they are the same economic reality seen from different angles. The central bank sees currency issued and deposited. The people see currency circulating in the real economy where they live and work.
Until policymakers build a governance architecture that acknowledges this reality rather than denying it, our monetary systems will remain theoretical exercises disconnected from the actual economy we are supposedly managing. The Ghost GDP is not a problem to solve through technological coercion or policy shock. It is evidence of an economy that we have not yet learned to see, and thus cannot wisely govern.
For agricultural producers across Tanzania, Kenya, Uganda, and throughout the continent, this recognition is crucial. The farmer is not waiting for formalization. The farmer is farming. The trader is not waiting for digitalization. The trader is trading. The market is working, in its own language, by its own logic.
Our job—as policymakers, as development professionals, as communications experts—is to learn that language, understand that logic, and build policy frameworks that support what is actually working rather than attempting to replace it with what we believe should work.
The real economy of Africa is not in the vaults of central banks. It never was. It is in the markets, the farms, the workshops, and the hands of millions of Africans conducting their economic lives with remarkable sophistication and efficiency. Our policy framework should reflect that reality.
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