By Ibrahim Shelling
In the bustling streets of Lagos, the vibrant markets of Kano, the industrious areas of Onitsha and the rural villages that dot the Nigerian landscape, a dynamic economic force thrives, often overlooked yet undeniably influential. This is the informal sector. The Nigerian economy is characterized by a vibrant informal sector, which operates outside the formal regulatory framework. This sector is composed of small-scale, unregistered enterprises. The lady that sells roasted corn on the roadside or “mama put”, the roadside mechanic, “mai shayi”, and the street affiliate marketer aka “oso ahia”, can all be classified as informal workers. Despite its undocumented nature, the informal sector plays a pivotal role in the economic development of Nigeria. It provides employment opportunities, generates income and fosters entrepreneurial spirit, thus making it an undeniably influential force in the Nigerian economy.
Nigeria’s economy has had its fair share of challenges in recent years. The International Monetary Fund (IMF) projected 2.9% growth for 2023, which is not far from the population growth forecast of 2.4%. High underemployment and unemployment rates combined with population growth, will lead to an increase in the number of job seekers in 2024. This, in turn, will push more people to turn to the informal sector for economic survival. The Nigerian Informal Sector (IS) is an essential part of the country’s economy, accounting for a significant portion of employment and national GDP. The IMF estimates that the Nigerian informal sector made up about 65% of the country’s 2017 GDP. With this in mind, there is a need to focus on the informal sector to ensure it plays an even more significant role in the country’s economic growth. In this article, we will explore the vital role that the informal sector plays in the Nigerian economy.
A Lifeline for Employment and Income Generation
The informal sector stands as a beacon of hope for millions of Nigerians seeking employment. With formal job opportunities often scarce, the informal sector has emerged as a lifeline, absorbing a significant portion of the country’s workforce. From street vendors peddling their wares to artisans crafting intricate handmade goods, the informal sector provides livelihood to an estimated 65% of the Nigerian labour force. This employment generation is particularly vital in rural areas, where the formal sector’s presence is often limited. Therefore, it could be said that the informal sector acts as a safety net, absorbing a significant portion of the labour force that might otherwise be left unemployed. These workers contribute not only to the economic vibrancy of their communities but also to the overall resilience of our nation in the face of economic challenges. Studies have shown that the informal sector is a primary source of income for the majority of Nigerians living below the poverty line.
The informal sector’s contributions serves as a breeding ground for entrepreneurship, fostering innovation and adaptability among small businesses. These businesses, operating with limited resources and constraints, often demonstrate remarkable agility in responding to market demands and adapting to changing economic conditions.
While the informal sector may operate on the fringes of the formal economy, its collective impact on national income is substantial. The income generated by small businesses, street vendors, and informal enterprises collectively contributes a significant share to Nigeria’s overall economic output. However, only a very small fraction of that income officially comes to government via taxes. Recognizing and understanding this economic force is crucial for policymakers and citizens alike, as it highlights the need for policies that support and integrate the informal sector into the broader economic framework.
Economic Resilience: A Buffer against Shocks
In the face of economic uncertainties, the informal sector demonstrates remarkable resilience and adaptability. This resilience was particularly evident during periods of economic uncertainty, such as the 2008/9 global financial crisis. Unlike large corporations that struggled to pivot quickly, informal businesses swiftly adjusted to changing circumstances. This flexibility is a valuable asset, especially in times of crisis, as it allowed for the continued operation of businesses and the preservation of jobs.
Challenges Facing the Informal Sector
Despite its significant contributions, the informal sector faces numerous challenges. Operating outside of formal regulations often limits access to financial services, credit, and adequate infrastructure. This lack of formalization can hinder the growth and sustainability of informal enterprises. Furthermore, the informal sector is often characterized by low productivity and limited technological adoption. This can constrain the sector’s ability to fully realize its potential. Addressing these impediments is not just an ethical imperative but a strategic necessity for unlocking the latent economic power within the informal sector.
Financial Inclusion: A Key CatalystOne of the critical challenges faced by the informal sector is the limited access to formal financial services. Many small-scale entrepreneurs operate in a cash-based economy, which not only hampers their ability to save and invest but also exposes them to financial vulnerabilities. This was perhaps most evident during the Covid-19 lockdown. These business do not get access to formal credit, insurance, and other ancillary services that help businesses grow. By promoting financial inclusion through innovative policies and initiatives, we can empower individuals in the informal sector to build financial resilience, expand their businesses, and contribute more effectively to the overall economy. Infrastructure Development: Bridging the GapInfrastructure deficiencies pose another significant challenge to the informal sector. Inadequate transportation, unreliable energy sources, and a lack of basic amenities can stifle the growth of businesses and limit their reach. Investing in infrastructure development tailored to the needs of the informal sector can unlock new opportunities, connect remote areas to larger markets, and create an environment conducive to sustainable growth.
Legal Recognition and Supportive Policies
- Formal recognition and supportive policies are essential for harnessing the full potential of the informal sector. By providing a legal framework that protects the rights of informal workers and acknowledging the economic contributions of these businesses, policymakers can create an environment that encourages growth and innovation. Tailored policies that address the unique challenges faced by the informal sector can pave the way for a more inclusive and equitable economy.
Spinal Tap: A Call to Action
As we delve into the intricate web of Nigeria’s informal sector, it becomes evident that this dynamic force is not merely a passive player but a driving force behind our economic resilience and growth. To truly harness the potential of the informal sector, we must collectively recognize its significance, address its challenges, and tap into its vast energy.
Empowering the informal sector requires a collaborative effort from government bodies, financial institutions, and the general population. By promoting awareness of the vital role played by informal businesses, we can cultivate a mindset that values and supports the growth of this sector. This awareness, coupled with targeted policies and initiatives, will create an environment where the informal sector can thrive, contributing even more substantially to Nigeria’s economic prosperity. There are some critical areas to consider:
- Streamline Regulatory Frameworks: Simplify registration and licensing procedures for informal businesses to encourage formalization.
- Promote Financial Inclusion: Facilitate access to credit and financial services for informal enterprises to enhance their growth potential.
- Enhance Skills Development: Provide training and skills development opportunities to improve productivity and innovation within the informal sector.
- Embrace Technology Adoption: Encourage the adoption of digital technologies to enhance efficiency and market reach among informal businesses.
- Support Infrastructure Development: Invest in infrastructure, such as electricity, transportation, and communication networks, to create a supportive environment for informal enterprises.
- Foster Social Dialogue: Engage in dialogue with informal sector representatives to understand their needs and challenges and incorporate their perspectives into policy formulation.
In conclusion, the informal sector is not just a footnote in the economic narrative of Nigeria but a compelling chapter that shapes the destiny of millions. As we celebrate the resilience, creativity, and tenacity of those in the informal sector, let us also commit ourselves to fostering an environment where their contributions are not only acknowledged but actively supported. In doing so, we pave the way for a more inclusive, vibrant, and prosperous economic future for our beloved nation.
