AI Limits on Digital Formalisation of Africa’s Economy

Samaila Zubairu, chief executive officer of Africa Finance Corporation, told delegates at the Africa Financial Industry Summit in Luanda on Tuesday that digital formalisation of the continent’s economy cannot be achieved without a parallel surge in basic infrastructure investment. Speaking alongside the heads of the African Development Bank and Afreximbank, Zubairu highlighted the stark gap between ambitious technology plans and the reality of unreliable electricity, insufficient storage facilities and weak transport networks that still plague most African businesses.

Zubairu’s remarks came during a panel titled “Capital Architecture: A New Age for African Finance”. He warned that artificial intelligence and software applications are rendered virtually useless when firms lack fundamental utilities such as stable power, warehousing space and reliable road or rail links. “AI is a threat, but it will not work in isolation,” he said, adding that the technology requires supporting elements like accessible land titles, effective tax regimes, training systems and digital gateways to government services. The chief executive argued that without these foundations, even the most sophisticated digital tools cannot bridge the continent’s massive informal sector, which employs roughly 83 percent of the workforce.

The speaker’s warning resonated with a broader narrative that has been gaining traction across African policy circles: that digital hype often overshadows the need for hard infrastructure. While many start‑ups tout cloud‑based solutions and mobile payment platforms, the day‑to‑day reality for a small textile workshop in Lagos or a grain‑storage facility in Dar es Salaam is that power cuts can last several hours a day, and internet connectivity remains spotty in many rural areas. Those conditions make it impossible for AI‑driven inventory management or predictive analytics to function reliably.

Zubairu drew a comparison with China, where formalisation of informal activities was driven not merely by administrative mandates but by the construction of physical infrastructure that dramatically lowered the cost of doing business. In Africa, Zubairu noted, attempts to digitise small enterprises without reliable electricity, cold‑chain logistics or telecommunications networks will not lift productivity. He called for African policymakers and investors to move away from isolated interventions and to adopt comprehensive industrial master‑planning that integrates infrastructure into broader regional ecosystems.

One concrete illustration cited by Zubairu was the Lobito Corridor, a multi‑billion‑dollar railway project linking the mineral‑rich belts of the Democratic Republic of Congo and Zambia to Angola’s Atlantic port. He urged that the corridor be leveraged not simply as a conduit for raw‑material exports but as a catalyst for regional processing, agricultural value chains and cross‑border energy trade. “We should be thinking about agricultural value chains, the mining sector, and the other industries that can develop around it,” he said. He also stressed the need for an integrated energy hub that could distribute electricity generated in Angola across neighboring countries, reducing reliance on costly imports.

The Lobito project exemplifies how a single piece of infrastructure can become a hub for multiple sectors when it is embedded in an intentional development strategy. If factories are sited along the rail line, they can benefit from cheaper freight costs and direct access to ports. Likewise, farms that gain reliable cold‑chain logistics can move perishable produce to larger markets without incurring waste, thereby encouraging formal registration and tax compliance. Zubairu’s point was that without such coordinated planning, the corridor risks remaining a extractive pipeline that benefits only a narrow set of actors.

Beyond the logistics of moving goods, Zubairu warned that large‑scale infrastructure projects inevitably attract human migration, creating pressure on urban centres. Without proactive urban planning, new transport and mining hubs risk devolving into unplanned slums rather than becoming structured commercial zones. He urged that development plans incorporate housing, sanitation and public services to accommodate the influx of workers and prevent the emergence of informal settlements that would further undermine formalisation efforts.

Urban planners across the continent have already grappled with similar challenges. The rapid expansion of cities like Abuja and Nairobi has produced informal districts where basic services lag behind population growth. By anticipating these dynamics in the design phase of projects like the Lobito Corridor, governments can allocate land for affordable housing, extend water and waste networks, and set up schools and health clinics that anchor communities in the formal economy.

The discussion highlighted a broader institutional dilemma identified by the panel’s moderator: technology entrepreneurs operate on accelerated digital timelines, while development financiers coordinate cross‑border capital, and state bureaucracies often move at a much slower pace. This mismatch, according to Zubairu, hampers the creation of a unified African financial architecture for development. He called on financiers, governments and private sector actors to synchronize their efforts, ensuring that infrastructure projects are not treated as isolated engineering feats but as integral components of a larger economic strategy.

In response to Zubairu’s comments, representatives from the African Development Bank and Afreximbank echoed the need for coordinated investment. They reiterated that financing mechanisms must be aligned with long‑term industrial planning to avoid fragmented outcomes. The consensus among the three institutions was that while digital innovation remains essential, it cannot substitute for power plants, freight rails and factories that underpin productive economic activity.

Experts note that the financing gap for such infrastructure is sizable, yet the cost of inaction is even higher. When businesses operate in an environment where power is unreliable, the average cost of production rises, discouraging formal registration and limiting access to formal credit. Moreover, the informal sector’s dominance means that a large share of tax revenue remains untapped, constraining governments’ ability to fund public services. By investing in reliable electricity grids, modern logistics hubs and digital service platforms, governments can create a virtuous cycle: lower operating costs encourage formalisation, which expands the tax base, which in turn funds further infrastructure upgrades.

As the summit drew to a close, participants acknowledged that the promise of digital formalisation will remain unfulfilled until the continent builds the hard, physical back end of its economy. The next steps involve translating the summit’s recommendations into actionable policies, with the AFC, AfDB and Afreximbank set to develop joint frameworks that integrate infrastructure development, regulatory reforms and technology adoption across the region. The three institutions plan to convene a series of working groups later this year to draft detailed roadmaps that align financing pipelines with master‑plans for corridors such as Lobito, ensuring that future investments are synchronized with the broader goal of turning Africa’s informal economy into a formally registered, digitally enabled engine of growth.