Economy
Nigeria’s informal economy: A catalyst for economic growth
Balogun market, Lagos, Nigeria. Pic: Megainsights
In a country like Nigeria that lacks social safety nets and has a minimum wage of less than US$98, a significant section of the population have no choice other than to turn to the informal sector as a survival strategy. However, there is every potential for the informal sector to be more than just a means of survival. If carried out effectively, government engagement with the informal sector can lead to an invaluable economy boost.
The informal sector: What are its contributions?
In a nutshell, an informal sector business is an unregistered business owned by one or more members of one or more households selling goods and services. Informal workers are workers engaging in work without formal employment contracts or workers producing goods for final use by their households. Jobs under this category include paid domestic workers, drivers, subsistence farmers and artisans. Over 61% of the world’s working population work in the informal sector. 85.8% of employment in Africa is in the informal sector. Over 65% of the working population in Nigeria is in the informal sector. In the 2016 fiscal year, 41% percent of GDP came from the informal sector and the informal economy also accounted for 73.7% of created jobs.
Whether the numbers tell the full story or not, the contribution of the informal sector to economic growth is more than negligible. Notwithstanding, the informal sector does not figure as prominently as it should in economic growth plans, even in previous administrations. The seven point agenda of the Umaru Musa Yar’adua administration did not consider the informal sector; neither did the transformation agenda of the Goodluck Jonathan administration.
Why must we pay more attention to the informal sector? Simple. The present and projected demographic of the Nigerian population demands it. Nearly 65 percent of Nigeria’s population is between the age of 15 and 64. Only about 8% of the adult population is formally employed.25% of Nigerian children aged between 5 and 17 are engaged in labour, all of whom are most likely in the informal economy. About 43 percent of women in Nigeria, particularly Northern Nigeria are married before the ages of 18 and in all likelihood have little to no chance of obtaining higher education. The chances of such individuals ending up in the informal economy are very high.
There are about 44.3 million small business owners in the sector employing about 22.9 million people. It is important to harness the potential contributions of the informal economy, which is responsible for the employment of such a significant section of the working population, to the fullest.
How can we remodel the informal economy? Two points will be made here. First of all, greater attention should be paid to proper regulation and structuring of activities in the informal economy. In doing so, the government could create an organization responsible for the registration of businesses in the informal sector all over the country. Such organization would be established by law and its activities monitored by established bodies. Subdivisions of such organization(s) at state and local government level could be established for effective monitoring at all levels. The Economic Growth and Recovery Plan (ERGP) developed by the Muhammadu Buhari Administration in 2017 places the responsibility of monitoring the informal economy on the Ministry of Industry, Trade and Investment. It remains to be seen whether this function will be carried out effectively by this organization.
Any formalization processes that will be carried out under the ERGP or any other economic plan should comply with International Labour Organization (ILO) standards in that it provides opportunities for income security, livelihoods and entrepreneurship. If the informal economy can be formalized through registration of informal businesses and workers, an obvious dilemma would be how to develop a proper taxation regime. If formalization does not result in taxation, government revenue from a significant aspect of the economy is reduced. Taxation on the other hand may discourage business owners and workers from being registered. A possible solution may be granting tax reliefs to registered businesses and workers below a certain income or profit level with income derived from taxation of formalized units being redirected towards investment in such sectors.
Furthermore, effort should be directed towards removing any ‘stigma’ associated with the informal economy. 61% of all workers worldwide are informally employed and as discussed earlier, the informal sector makes significant contributions to the Nigerian economy. Concerted effort must be made towards promoting the informal sector as a viable economic growth/poverty reduction mechanism. Informal workers are also skilled workers and the informal economy is also a skilled economy.
Accordingly,the government can create and sponsor low-cost well-equipped skill platforms that connects individuals willing to work in the informal sector and experts together. The current government appear to be taking steps in this regard. In 2015, the government approved the establishment of Vocational Enterprise Institutions(VEIS) and Innovative Enterprise Institutions(IEIS), secondary schools which work with businesses to provide vocational and technical training. There are now about 82 VEIs and 152 IEIs in Nigeria.
However, these institutions, as with other educational institutions in Nigeria, suffer from funding problems and are also expensive for many of the prospective beneficiaries. The government could provide assistance in this regard by subsidizing costs for prospective attendees. Alternatively, the government could collaborate with private organizations to organize periodic technical training programmes for members of the public. The allocations to the Ministry of Education in the 2019 budget proposal and projects listed under it do not indicate that the government is willing to make significant investment in this regard anytime soon.
It may be unheralded but the strong contributions of the informal economy to employment and economic growth cannot be easily discountenanced. With proper structuring, it could be an economic goldmine.
Author
Oluwafifehan Ogunde is a research specialist and legal consultant. He has a PhD in Law from the University of Nottingham and is a qualified barrister and solicitor of the Federal Republic of Nigeria.
Meta recently hosted its first Youth Summit in Lagos, Nigeria, bringing together over 200 young professionals, students, recent graduates, creatives, tech enthusiasts and aspiring entrepreneurs.
Themed ‘Empowering Youth Through Technology, Innovation and Entrepreneurship’, the summit included a series of thought-provoking panel discussions, a mentoring session and an interactive workshop designed to equip young Nigerians with the skills, insights and networks needed to thrive in today’s tech-driven world.
Commenting about the event, Phil Oduor, Head of Policy Programs, Sub-Saharan Africa said, “At Meta, we believe that today’s youth are tomorrow’s change-makers. Through initiatives like the Youth Summit, we aim to foster innovation, promote digital literacy and empower young Nigerians with the tools and opportunities to realise their potential and contribute to Nigeria’s growing digital economy.”
Delivering the keynote address, Femi Aluko, CEO/Co-Founder, Chowdeck, shared his journey of breaking barriers to achieve success in tech. He encouraged attendees to embrace the limitless opportunities within today’s technology ecosystem.
A panel discussion, led by Chinny Francis, Public Policy Manager at Meta, featured panellists Nifemi Akinwamide, Head of Operations, Alt School; Adaora Mbelu, Co-Founder of Lumination Global and Obaloluwa Adeagbo, Marketing Lead at Talstack. They shared valuable insights about the future of work, emphasising the importance of storytelling to build a personal brand, practicing self-awareness, developing soft skills, lifelong learning and honing problem-solving skills to thrive in a digitally transformed world.
Francis Sani, Technical Adviser for Innovation, Entrepreneurship & Capital at the Federal Ministry of Communications, Innovation & Digital Economy, spoke at the event. He highlighted the 3 Million Technical Talent (3MTT) program, emphasising that the program aims to build Nigeria’s technical talent backbone to drive the digital economy and position Nigeria as a net talent exporter. He encouraged youth to take advantage of this opportunity.
Another panel of industry experts took the stage during the ‘Lunch and Learn: Navigating Entrepreneurship in a Rapidly Changing Landscape’ session, moderated by Sade Dada, Head of Public Policy for Anglophone West Africa at Meta. Seye Bandele, CEO of PaidHR and Damilola Teidi-Ayoola, Head of Platform and Networks at Ventures Platform Fund, shared their invaluable insights. Seye highlighted the importance of grit, curiosity and candour, while Damilola reinforced the need to understand one’s target audience, deliver value through their business and embrace data-driven decision-making in the dynamic entrepreneurial landscape.
The event also featured inspiring conversations with leading figures in the creative industry. Miss Techy, an award winning tech content creator and Salem King, a creator, storyteller, author and speaker, shared their experiences and advice on achieving long-term success. Attendees also benefited from an interactive workshop and a mentoring session, where industry experts shared practical advice and strategies for entrepreneurs and tech enthusiasts.
Meta’s Youth Summit 2024 highlights a commitment to driving positive change, championing youth empowerment and advancing economic opportunities in Nigeria. Through investments in key areas—such as the creative industry, digital literacy, economic impact and youth job training—Meta is dedicated to empowering young Nigerians to thrive in today’s tech-driven world.
Cross-section of some of the attendees at the Meta Youth Summit 2024 in Lagos
L-R: Chinny Francis, Public Policy Manager, Meta; Nifemi Akinwamide, Head of Operations, Alt School; Adaora Mbelu, Co-Founder of Lumination Global and Obaloluwa Adeagbo, Marketing Lead at Talstack.
L-R: Sade Dada, Head of Public Policy, Anglophone West Africa, Meta; Damilola Teidi-Ayoola, Head of Platform and Networks, Ventures Platform Fund, and Seye Bandele, Chief Executive Officer, PaidHR during the Lunch and Learn: Navigating Entrepreneurship in a Rapidly Changing Landscape panel session.
Salem King, a creator, storyteller, author and speaker and Miss Techy, an award winning tech content creator
During a mentoring session workshop
Femi Aluko, Chief Executive Officer and Co-founder, Chowdeck.
Francis Sani, Technical Adviser to the minister of communications and digital economy of Nigeria
Economy
Tosin Eniolorunda: Fighting fraud related issues in financial ecosystem requires collaboration
Nigeria’s financial system has come under renewed scrutiny against the backdrop of the increase in the value of electronic payment transactions in Q1 2023 and the challenges posed by bad faith actors who exploit gaps in the payment systems even as Nigerian financial institutions have reported ₦159 billion ($201.5 million) lost to fraud since 2020. There is a need for all players in the financial services sector to come together in tackling these challenges.
Group CEO, Moniepoint Inc., Tosin Eniolorunda during a courtesy visit to the Chief Executive Officer, Fidelity Bank, Nneka Onyeali-Ikpe in Lagos. Onyeali-Ikpe, who welcomed the Moniepoint boss, used the opportunity to reaffirm her bank’s appreciation for the patience and understanding demonstrated during its banking channel integration optimization which resulted in service disruptions and the inability of Moniepoint customers to receive financial inflow.
It will be recalled that Fidelity Bank had recently announced to its customers and the general public, the resumption of interbank transfers to all licensed financial institutions in the country. This was following speculative reports from various media publications that the bank had imposed transaction restrictions on some neo banks operating in the country.
During conversations around the growth of the digital payments segment and contributions of the financial services to Nigeria’s socio-economic development, Tosin Eniolorunda used the occasion to stress the point that Moniepoint as a responsible and compliant organization takes customer KYC very seriously. “KYC is not merely an acronym but indeed a cornerstone in establishing trust, ensuring security, and complying with regulatory standards. All accounts created on our platform have BVN verification and in addition to this we perform a liveliness check at the point of onboarding. This is a comparison of the account holder’s life picture and the BVN image as a way to reduce impersonation,” Eniolorunda maintained.
He continued, “we have zero tolerance for fraud and typically go all out to ensure that we track fraudsters and fraudulent transactions on our platforms. We have deployed and utilize robust fraud detection systems and technologies that can analyze patterns, identify anomalies, and detect suspicious activities in the system. As such we are better empowered to identify potential fraud incidents and trigger alerts for further investigations and remedial actions.”
As partners in deepening the CBN’s mandate of ensuring provision of adequate and convenient financial services to consumers and guaranteeing their protection as well as the various undercurrents in the financial services industry, Moniepoint and Fidelity agreed to work closely together to develop a tightly knit mechanism to stem the menace of fraudulent transactions and collaboratively push through in addressing payment challenges in the country.
The Republic of Angola has become the 21st African Member State and the 1st Lusophone Member State of pan-African insurer, Africa Trade Insurance Agency – ATI, after paying a capital subscription of USD25 million. The membership was funded the Angolan National Treasury resources and proceeds from the landmark BITA water project – a strategic public investment for the construction of infrastructure for the treatment, supply and storage of drinking water that will benefit 2.5 million people in Angola.
Welcoming Angola’s membership, ATI’s Chief Executive Officer, Manuel Moses, noted the country’s demonstration of its commitment to diversify its economy through ATI’s trade and investment risk mitigation solutions.
“We are happy to support Angola in its quest to economic diversification and becoming an agricultural powerhouse on the African continent. Angola’s membership is timely as ATI’s risk mitigation and credit enhancement services will act as a catalyst for strengthening and diversifying Angola’s economy, supporting both increased investment, exports and trade under Africa’s continental framework of the AfCFTA,” Mr. Manuel said.
Under this one of a kind blended finance and guarantee innovative structure, the Republic of Angola – along with the lenders covered by ATI under the transaction – agreed for the use of proceeds under the syndicated loan to also include the financing for the purpose of Angola becoming a member of ATI. ATI provided guarantee and insurance support for this World Bank’s partially guaranteed facility to the Government of Angola for the expansion and improvement of water supply service in the urban and peri-urban belts of Luanda.
Current exposure
ATI’s gross exposure in Angola, the largest country in Southern Africa Region, currently stands at USD467M mainly in construction, energy & gas, trade & transport, water supply and wholesale & retail sectors, with transactions valued at USD1.4B.
“This development was made possible because of ATI’s pan African mandate that allows the organization to cover transactions in Angola and beyond, despite ATI non-membership. Now that Angola is a fully-fledged shareholder of ATI, the country can fully access more of ATI’s guarantee solutions to attract more Foreign Direct Investments and boost its internal and external trade across the region,” Mr. Manual explained.
Angola’s economy is mainly driven by its oil sector but the country seeks to pursue new growth models for economic diversification through the agricultural sector and private sector development.
With ATI’s support, Angola is on the path to fiscal consolidation, manage their debt ceiling, increase in public and private investment, in order to resume the ascending curve of sustainable and inclusive economic growth as well as human development.
ATI has grown from a small African start-up in 2001 into a pan-African institution with presence across Africa and with a significant global reach. Besides Angola, other member countries include Benin, Burundi, Cameroon, Côte d’Ivoire, Democratic Republic of Congo, Ethiopia, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Rwanda, Senegal, South Sudan, Tanzania, Togo, Uganda, Zambia, and Zimbabwe.
Institutional members include African Development Bank, African Reinsurance Corporation, Atradius Group, Chubb, CESCE (Spanish ECA), Ministry of Finance India (represented by ECGC), SACE SIMEST, The Common Market of Eastern and Southern Africa (COMESA), Trade and Development Bank (TDB), Kenya-Re, The PTA Reinsurance Company (Zep-Re), and the UK Export Finance.
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