In the sprawling maze of Alaba International Market in Lagos, where the hum of generators mingles with the urgent calls of traders hawking everything from electronics to textiles, Nigeria’s economic paradox plays out in real time. Here, as in countless markets across the nation’s 36 states, millions of entrepreneurs embody a contradiction that has come to define Africa’s largest economy: extraordinary resilience coupled with profound vulnerability. The latest Moniepoint Informal Economy Report illuminates this paradox with uncomfortable precision. While 65 percent of informal businesses experienced revenue growth in the past year, a testament to Nigerian entrepreneurial spirit, only 47 percent saw their profits rise. More troubling still, 42 percent of these operators lack sufficient savings to survive even one month without income. This is not mere statistics; it is the anatomy of what economists might term “profitless prosperity”, a condition where nominal growth masks real stagnation, where survival is mistaken for success.
The inflation stranglehold
At the heart of this contradiction lies inflation’s relentless squeeze. With headline inflation at 25.9 percent and the Central Bank’s policy rate at 24.75 percent, the informal sector finds itself caught in a macroeconomic vice. For businesses operating on margins of 10-15 percent, input cost inflation of this magnitude represents an existential threat. The woman selling tomatoes in Mile 12 Market faces a cruel arithmetic: raise prices and lose customers, or maintain prices and watch profits evaporate.
This inflationary environment has created what development economists recognise as a “low-level equilibrium trap”, where businesses generate enough revenue to survive but insufficient profit to grow. The finding that 38 percent of informal businesses earn less than ₦10,000 daily underscores this precarious existence. These are not businesses poised for expansion; they are survival mechanisms in an economy that offers few alternatives. The policy implications are profound. Nigeria’s monetary authorities face the unenviable task of containing inflation without destroying the livelihoods of 70 percent of workers dependent on informal economic activity. The current approach, aggressive interest rate hikes, may be necessary for macroeconomic stability, but it risks creating a recession among those least equipped to weather it.
The digital dichotomy
Perhaps the most intriguing revelation from recent research concerns the selective digital adoption among informal operators. While cash dominates customer transactions, 48 percent prefer digital payments when settling with suppliers. This is not a technological inconsistency but sophisticated economic behaviour. Business owners understand that digital payments offer efficiency and record-keeping benefits in B2B transactions while recognising that their customers face different constraints.
“Transforming Nigeria’s informal economy requires recognising it not as a problem to be solved but as an asset to be optimised. This demands building systems that work with informal operators rather than against them. The immediate priority is addressing the financial vulnerability revealed by widespread lack of savings buffers.”
The persistence of cash at the retail level reflects deeper structural barriers. Poor network connectivity, limited smartphone penetration among low-income consumers, transaction costs of 2-3 percent, and the cultural importance of price negotiation all contribute to cash’s endurance. The Central Bank’s projection of a 32 percent decline in cash payments by 2030 appears optimistic, absent fundamental infrastructure improvements and cost reductions.
This digital paradox reveals the folly of top-down technology adoption strategies. Success requires building trust through reliability, reducing transaction costs, and creating clear value propositions for both merchants and consumers. The solution lies not in forcing digital adoption but in making it irresistibly beneficial.
The formalisation conundrum
The relationship between informality and economic development remains one of Nigeria’s most complex policy challenges. Many operators remain outside formal systems, not from ignorance but as a rational response to regulatory complexity and taxation burdens they cannot navigate or afford. A small trader earning ₦500,000 annually sees little benefit in formal registration if it means higher taxes, complex bookkeeping requirements, and bureaucratic processes that consume valuable time.
Current formalisation efforts fail because they emphasise compliance over incentives. Successful policy requires a fundamental inversion: making formal status genuinely attractive rather than merely mandatory. This might include graduated taxation starting from zero for micro-enterprises, simplified mobile-based registration, and meaningful benefits like access to government contracts or formal credit.
The goal should be voluntary formalisation driven by economic incentives rather than regulatory compulsion. A “First-Time Formaliser” package offering tax holidays, single-digit loans, and streamlined processes could present formalisation as a key to unlock value rather than a burden to bear.
Gender and the double burden
Women constitute over 60 percent of informal traders yet face disproportionate barriers to growth and formalisation. These challenges extend beyond limited capital access to include time constraints imposed by domestic responsibilities. The intersection of gender and informality requires targeted interventions recognising women’s dual roles as business operators and primary carers.
Successful policies must address practical constraints: childcare availability, flexible financial products accommodating irregular income patterns, and training programmes delivered in accessible formats. Group lending models, mobile digital identities, and female-centric value chain finance represent not progressive ideals but economic imperatives. Supporting women in the informal economy generates multiplier effects through improved household welfare and community development.
Technology’s double edge
The debate over technology’s role in informal sector development requires nuanced analysis. Digital tools have revolutionised supply chains, record-keeping, and payments, but they also introduce new costs and dependencies. POS machine fees, platform commissions, data costs, and device maintenance all erode thin profit margins. For nano-entrepreneurs earning ₦5,000 daily, a 2 percent transaction charge can determine profitability.
Technology must be designed with empathy—local language options, visual prompts, offline functionality, and immediate feedback loops. Trust becomes the new currency in digital transformation. Systems offering unclear terms, poor dispute resolution, or unreliable service will face resistance regardless of their technical sophistication.
The path to transformation
Transforming Nigeria’s informal economy requires recognising it not as a problem to be solved but as an asset to be optimised. This demands building systems that work with informal operators rather than against them. The immediate priority is addressing the financial vulnerability revealed by widespread lack of savings buffers.
This requires innovative financial products accommodating irregular income flows, seasonal variations, and specific risk profiles of informal businesses. Alternative credit scoring based on transaction data, simplified regulatory compliance through digital platforms, and market linkages connecting informal producers with formal sector customers represent promising pathways.
A shared “Informal Sector Credit Database” developed by the CBN in partnership with fintechs could finally connect responsible businesses with deserved capital, moving them from loan sharks to legitimate lending. Embedded savings products, auto-locking accounts, goal-based targets, digital ajo or esusu, align with informal operators’ financial behaviours better than rigid traditional banking.
The stakes
Nigeria’s informal economy stands at a critical juncture. The sector’s resilience has sustained millions through multiple economic crises, demonstrating remarkable adaptability and entrepreneurial spirit. However, the current combination of high inflation, limited financial services access, and regulatory complexity threatens to trap operators in cycles of subsistence rather than enabling growth and prosperity.
With intentional policy combining digital inclusion, financial innovation, and regulatory empathy, the sector could shift from a national shock absorber to an inclusive growth engine. Success could see the sector’s GDP contribution rise from 58 percent to 65 percent by 2030, creating 15-20 million additional employment opportunities and reducing poverty through improved income stability.
The choice facing policymakers is stark: harness the informal economy’s dynamism through supportive policies and inclusive financial systems, or watch as economic pressures erode the livelihoods of our most vulnerable entrepreneurs. The data suggests informal operators are ready for transformation. What remains is building the institutional architecture to support their aspirations.
The informal economy is not Nigeria’s economic periphery; it is its beating heart. It deserves policies matching its central importance to national prosperity. The resilience trap can be broken, but only through recognition that these millions of micro-entrepreneurs represent not subjects to be regulated but partners to be empowered. Their prosperity must not remain profitless. The future of Nigerian economic development depends on it.
Dr Oluyemi Adeosun, Chief Economist, BusinessDay Nigeria.
