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.
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.
Exploring a new model for cooperation between business and society- Nonny Ugboma
Nonny Ugboma is the Executive Secretary of the MTN Foundation (Image source: Nonny Ugboma)
The hand-me-down capitalism models Africa inherited from her colonial masters have failed to yield a prosperous continent despite its vast resources. Therefore, Africa is in desperate need of something different that takes into consideration its unique history, qualities, and context.
Experts have mostly seen the interdependence of businesses and society as transactional, with the society needing business for products and services, for jobs, for government taxes revenues. In turn, business needs the society for the market, sales and profits and public infrastructure, security and the rule of law! According to Amaeshi (2019) businesses, though sympathetic to societal challenges, are reluctant to act positively through their companies as they sometimes see such requests as irrelevant to their objectives.
However, due to the interdependency and interconnectedness of business and society, companies must work collaboratively with the government for a common purpose. That purpose is to build local resources.
There have been calls for western economies to rethink their capitalism model (Jacobs & Mazzucato, 2016). There have also been calls for Africa to develop its model of capitalism, with theorists and entrepreneurs exploring ideas like Africapitalism (Amaeshi, 2015). Africapitalism, coined by Nigerian entrepreneur Tony Elumelu, focuses on the role of business leaders, investors, and entrepreneurs on the continent’s development to create economic prosperity and social wealth. It rests on the following four pillars: a sense of progress and prosperity; the sense of parity and inclusion; a sense of peace and harmony; and a sense of place and belongingness.
Africa does need its model. However, I would argue that this model should be spearheaded by the state in collaboration with willing stakeholders in the private sector and third sector, unlike Africapitalism. A government-led push is especially relevant now that a few 21st century economists are reassessing and rethinking capitalism in its present form. One of such critics is UCL’s Mazzucato (2018) The Entrepreneurial State: Debunking Public vs Private Sector Myths who debunks the mainstream neo-classical narrative that the private sector alone drives innovation but takes the position that the state is the driver of innovation.
Mission-Oriented Innovation Approach (MOIA) could help address some of the identified gaps to ensure state and business work jointly to solve grand challenges, to co-create public value and co-shape a robust and sustainable society that it can bequeath to future generations.
There is, therefore, a need for an alternative model of collaboration for business, society and government. A suggested way forward for Nigeria, and indeed Africa, is to embrace a mission-oriented innovation approach. The concept of the mission-oriented approach that involves government co-creating and co-shaping the market with the private and third sectors has enormous potential for Africa. The four pillars of ROAR, developed by Mariana Mazzucato (2016), is a useful tool-set to anchor MOIA in Africa:
1. Routes and directions– Government and Public institutions and agencies to set
missions. Also, private sector leaders can nudge government agencies to agree to
work collaboratively on national priority areas.
2. Organisational Capacity– Building of dynamic Capabilities within the Public sector through advocacy, capacity building, conferences and training.
3. Assessment and evaluation– Agencies, academia and organisations to determine new
dynamic tools to assess public policies to create new models and markets.
4. Risks and rewards– Government and private organisations need to engage on the
best risks and rewards sharing formats from initiatives to ensure smart, inclusive and
In conclusion, as Western Economies are reviewing and rethinking capitalism and their operating models, Africa must ensure she does the same. The reason is that the future of the development of the continent depends on the economic model that it chooses to adopt, in the future, especially with the growing youthful population.
Aurthor: Nonny Ugboma is the Executive Secretary of the MTN Foundation and has recently returned from one-year Sabbatical studying for a master’s degree in Public Administration from the University of London Institute for innovation and Public Purpose.
Leveraging Digitized Social Welfare Programs to Deepen Female Financial Inclusion in Africa
(Image credit: jumo.world)
Global economies- from Nairobi to Beijing- are undergoing a rapid
transformation, with digital technologies changing the way people
communicate, work, bank, and access information.
Today, previously unbanked households in Nigeria, Kenya and other nations of Africa can now access instant credit over their mobile phones.
Rural households in Senegal are lighting their homes by linking their bank accounts to off-grid solar energy systems. Government officials in India are combining digital payment and ID technologies to deposit money directly into the accounts of citizens living in distant villages, increasing the transparency and efficiency of social welfare programs.
These and other digital innovations are creating opportunities for countries to build more inclusive, productive, and prosperous societies.
The McKinsey Global Institute estimates that widespread adoption and use of digital payments and financial services could increase the GDP of all emerging markets by $3.7 trillion by 2025. This additional GDP could create up to 95 million new jobs, raise overall productivity and investment levels, and make government spending more efficient.
Interestingly, no one stands to benefit more from this growth than women. It is a fact beyond argument that women and girls shoulder the global burden of poverty. Decades of research show that poverty deprives women of vital health, education, and socioeconomic opportunities throughout their lives. As a result, women earn less, own fewer assets, and are underrepresented in economic and political decision-making. This inequality means they experience fewer benefits from economic growth and suffer more of the challenges of life lived in poverty.
For women in low- and middle-income countries, digital savings, credit, and payments services can provide them with a critical link to the formal economy and a gateway to greater economic security and personal empowerment.
An emerging body of evidence shows this also pays dividends for their families in the form of better health and education. When women-headed households in Kenya adopted mobile money accounts, poverty dropped, savings rose, and 185,000 women left agricultural jobs for more reliable, higher paying positions in business or retail.
In Niger, distributing government benefit payments through a mobile
phone instead of cash helped give women who received the transfers
more decision-making power in their households.
Overall, strong progress has been made with financial inclusion in many (African) countries. And many of these countries have also experienced a sharp uptick in financial inclusion rates among women. Between 2011 and 2017, the number of women with their own account doubled in Kenya and Ghana and increased seven-fold in Senegal. And crucially, in several African countries, mobile money has emerged as an equalizing force, and can further help more and more (African) women towards financial inclusion.
However, digital financial exclusion is not merely an access problem. Although digital technologies hold vast potential to improve human welfare, they also pose considerable risks, from the establishment of digital monopolies to cyberattacks to digital fraud.
In light of that, as previously excluded women become first-time users of digital technologies, they are particularly exposed to these and other risks, such as new forms of gender-based violence, abuse, and harassment in digital contexts.
Our global challenge, therefore, is not merely to close the digital (financial) divide, but also to establish sound regulatory and supervisory frameworks to ensure that women and vulnerable citizens reap the benefits from digital technologies without suffering from their potential adverse effects.
Written By: Onyeka Akpaida, Founder at Rendra Foundation
Thomas Pays, CEO of Ozow: SA’s economic revival depends on digital inclusion
Thomas Pays, CEO and co-founder Ozow
Unless we ensure digital inclusion for all South Africans, any efforts to build a vibrant and growing economy will fall flat.
South African consumers and businesses need safe, convenient and accessible cash alternatives that simplify the payments process. As it stands, too many are excluded from online and other value-added services simply because they lack access to a bank card. While there are lower levels of banking services penetration in other African countries, 80% of South African citizens are banked, a commendable increase from only 46% in 2004. However, only one in eight adults have access to a credit card. For the rest, many online services remain inaccessible. The over-reliance on card payments to facilitate online and other transactions continues to exclude a large portion of the country’s consumer market.
Cash still dominates the South African economy. Even though it is still growing change is sweeping through the ecosystem. Market-led payments companies are introducing new innovations that enable non-card users to transact safely and conveniently, greatly improving digital inclusion especially in underserved markets. Judging by recent developments, government is also searching for solutions that replace cash with more convenient and safer forms of electronic payment, and bring opportunities for underserved communities to access new payment and financial services options.
Digital inclusion a national priority
The South African government has set its sights on fostering greater digital inclusion, as is evident in the President’s State of the Nation address in February, which highlighted the need for improved digital literacy among the country’s citizens. The SA Reserve Bank’s Vision 2025 has also emerged as a roadmap to establishing a vibrant open banking ecosystem in the country.
In a bold step earlier this year, regulators instructed South Africa’s mobile operators to adjust their pricing in order to reduce inequality in digital inclusion. The Competition Commission found that lower-income mobile users were disproportionately disadvantaged by higher per-MB costs than larger data bundles for higher-income users. This will certainly aid greater adoption of online services and alternative payment types among the country’s large middle- to lower-income groups, who were previously unable to afford high ad-hoc data costs.
Solutions to low adoption of new payment types
In a 2019 global report, McKinsey identified cloud-based, API-driven architectures built on open banking principles as accelerators of innovation and competition in the payments industry. And that’s one vital role Thomas Pays believe companies such as Ozow fulfil in the African market: combining new technologies and new thinking to offer simplified payments to all. This is evident in how some of the main barriers – lack of data, low-end smartphones – are being overcome with innovative workarounds.
While South Africa’s smartphone penetration is currently over 80%, a lack of data means many consumers are often locked out of using online services and alternative payment methods such as QR code based payments. One solution is to zero-rate mobile data costs. In our experience, this helps ensure consumers can make electronic, mobile or app-based payments even when they have no data on their devices, and directly contributes to greater adoption and usage.
Many of the smartphones used by lower-income consumers also lack sufficient space for the growing list of apps used to facilitate electronic payments. Here, offering the option of a progressive web app that can be accessed via a browser allows consumers to pay without having to permanently store a native app.
South Africa – and the rest of Africa – needs to put concerted effort into driving digital inclusion among the continent’s 1.3 billion citizens. I’d suggest starting with improving access to simple, safe payment options that remove the reliance on cash.