Complexities in formal registration processes, as well as expensive bureaucratic procedures have been identified as key factors ensuring that Nigeria’s informal or underground economy remains unharnessed.
Nigeria’s informal economy, which is a huge employer of labour, especially of those unable to gain employment in the formal sector, is estimated to be as large as 57.9 percent of GDP (roughly N50.8 trillion), by the United Nations Development Programme (UNDP).
MSMEs account for 80 percent of the total number of enterprises in Nigeria, and up to 75 percent of the total employment base (employing 32.4 million Nigerians).
In addition, micro enterprises comprise 98 percent of all MSMEs in the country, whereas small and medium enterprises comprise 1 percent each. Although a large proportion of these enterprises will be classified under the formal sector, it is probable that an even larger proportion operate in the informal economy.
“Business owners cite a complicated formalization process and added costs as the main reasons why they choose not to transition to the formal sector,” said Philips Consulting in its Informal Economy Survey Report.
“Informal workers are often able to increase their take-home earnings by avoiding taxation and social contributions because the informal economy is poorly regulated”, the report further said.
Most informal workers (66 percent) earn less than N100,000 per month, and only half (50 percent) are satisfied with their employment status.
According to the National Bureau of Statistics (NBS), the informal economy consists of over 17 million businesses and enterprises, and contributes most significantly to job creation. Between July 2012 and June 2014, 2.48 million jobs were created, with the informal economy contributing the most at 1.41 million (57%), the formal economy contributed 40 percent, and the public sector contributed 3 percent.
“Many work in the sector because they are unable to secure formal employment,” “and it grows mainly as a result of increasing poverty and unemployment levels”, said the Lagos-based consultancy.
The informal economy comprises commercial activities that are not fully regulated by the government and other public authorities; however, these activities are legal, albeit conducted in an irregular manner.
It also tends to be viewed as the space in which lower income groups operate, therefore requiring minimal skills and education for entry. “Most choose to work in the sector to survive, rather than a burning desire to start a business”.
61 percent of respondents interviewed approve of the informal sector and believe that policies should be created to make the formalization process as straightforward and inexpensive as possible in order to support those operating in the informal economy.
The informal economy has been globally accepted as a crucial generator of income, goods and services, and employment, especially for low-income earners.
The global informal economy is estimated to be worth $10 trillion and accounts for about 80% of the global workforce.
Countries such as Bolivia (66%), Zimbabwe (62%), Tanzania (57%), Nigeria (56%) and Thailand (51%) were among the countries whose informal activities contributed more to the overall economy than the activities of the formal sector.
Edozie Ifebi and Josephine Okojie
