Intellectual – Foresight & Big Ideas · Editorial

By Moakanyi Magazine · Global Issue · June 2026

Most attempts to formalise the informal economy fail for the same reason: they ask traders to take on cost and visibility before offering them anything in return. Register, declare, comply – and wait to see whether the benefit ever arrives. Faced with that bargain, a vendor in a Gaborone market rationally stays in cash. The digital alternative inverts the order of the deal, and in doing so changes who wants to take it.

When VAT, payments and compliance run through the same rails a trader already uses to get paid, formality stops being a form to fill in and becomes a by-product of doing business. Research on digital tax and compliance systems describes this as a flywheel – each digital transaction making the next one easier to see, to service and to tax. The mechanism is not enforcement. It is design.

How the flywheel turns:

It starts with payments. Once a trader accepts digital money, a record exists without anyone having to create one by hand. Layer VAT and light compliance onto that record and the cost of being formal falls while the benefit – access to credit, contracts and refunds – rises. Each loop pulls more activity into the visible economy, which widens the base, which funds the services that make formality worth choosing in the first place.

The engine feeds itself. More visible transactions mean more data, which means better-targeted services and easier credit decisions, which draw more traders in. The flywheel gathers momentum because every turn lowers the friction of the next. That is what separates a digital approach from a paper one: the paper system fights gravity, while the digital one rolls downhill once it starts.

Formality stops being a burden the moment it rides the rails a trader already uses.

What it means in Gaborone and Francistown:

Botswana has a large informal sector and a tax authority, BURS, that gains directly from a wider net. Mobile payments are already common in markets, ranks and small shops across Gaborone, Francistown and Maun, which means much of the underlying plumbing already exists. The opportunity is to connect those payment flows to VAT and registration in a way that rewards participation rather than punishing it.

The risk is the mirror image. A heavy compliance layer bolted onto digital payments – too many forms, too little benefit, too aggressive a touch – pushes traders straight back to cash, and the flywheel stalls before it turns. The design choice is everything: build the system so that the easiest path is also the formal one, and formalisation becomes the default rather than the imposition.

A net that rewards the fish catches more than one that only frightens them.

The revenue case, carefully:

A wider tax base lets a government lower the rate or widen the spend without raising the burden on those already paying. For a Botswana facing diamond-revenue pressure, formalising digital activity is one of the few levers that grows the base without inventing a new tax or squeezing existing payers harder. It is the rare reform where the fiscus and the trader can both come out ahead.

It is not automatic, and it should not be sold as a certainty. The flywheel depends on trust, simplicity and a visible return for the trader who steps into the light – a faster refund, a loan they could not otherwise get, a contract that requires a tax number. Without that return, the system collects data and resentment in equal measure.

The base widens fastest when stepping into the light pays better than staying out of it.

For Botswana, the formalisation flywheel is less a single policy than a design principle: build compliance into the payment, not on top of it. Done well, it turns the informal economy from a gap in the national accounts into a growing line within them – and does so without a single new collector knocking on a single new door. The work is in the architecture, not the enforcement. For a country trying to widen its revenue base without raising rates on an already-stretched formal sector, that is a rare combination – growth in collections that comes from inclusion rather than pressure. The traders who join do so because it pays them to, and the fiscus grows because they did. Designed with that logic, formalisation stops being a contest between the state and the trader and becomes something closer to a shared interest.

Sources: arXiv