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Nigeria’s informal economy: A catalyst for economic growth

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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.

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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.

 

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Economy

Arab central banks’ chief laud Egypt’s successful economic reform experience

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Governor of the Central Bank of Egypt (CBE) Tarek Amer

CAIRO – 15 September 2019: Governors of Arab central banks and monetary institutions applauded Sunday Egypt’s successful economic reform, which helped restore investors confidence.

This came during the 43rd session of the Arab Central Banks Governors and Arab Monetary Associations, which kicked off earlier in the day at the Central Bank of Egypt (CBE) with the participation of over 200 Arab bankers, central banks’ governors, ministers, economic experts and officials of the Arab Monetary Fund.

Also Read Meet Sivi Malukisa, The Congolese Entrepreneur Whose Food Startup Is Promoting DRC Cuisine

Participants asserted that the Egypt’s economic reform experience over the past four years should be documented as a model to be followed by other countries.

Egypt Today

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Economy

ICRC Partners with Tony Elumelu Foundation to Create Economic Opportunities in Conflict Prone Regions

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Lagos, NIGERIA, September 12, 2019; At the just concluded Forum organised by the International Committee of the Red Cross (ICRC), key speakers Tony O. Elumelu, Founder of the Tony Elumelu Foundation and Peter Maurer, President of the International Committee of the Red Cross (ICRC) proffered entrepreneurship as the most sustainable solution to accelerating Africa’s transformation. During a one-on-one conversation at the event, both speakers called for a new private-sector-led approach to humanitarian development in Africa.

While speaking at the Forum, Peter Maurer commended the Tony Elumelu Foundation’s private-sector-led approach as the gold standard of humanitarian development in Africa focused on impacting lives at scale and transforming the continent.

Mr. Maurer said: “On one side, it is important that we assist and protect people when they are disrupted by violence and war. But what brought me together with Tony is not the white shirt and the blue suit, it is his deep conviction that with longer and protracted conflict we need to bring people much earlier into independence.”

He added: “We need, more than ever, in the most fragile, violent parts of society to show the pathway to independence and to a dignified life and this goes with income-generating activities, productive activities, with small businesses. This is why we partnered with the Tony Elumelu Foundation”.

On his part during the discussion themed “Private Sector Partnerships with Humanitarian Organisations: Putting People First”, Mr. Elumelu commended Mr. Maurer’s leadership and the decision to partner with the Tony Elumelu Foundation to eradicate extremism and violence.

He said: “Through the partnership between TEF and ICRC, a lot is happening that shows the catalytic impact of your vision. Ours was the first ever partnership that ICRC had explored using a different approach to humanitarian development, from the angle of empowering the private sector. Today, the Tony Elumelu Foundation has partnered with AfDB on empowering 1000 beneficiaries, UNDP which started with 1000 entrepreneurs and has now been scaled up to empower 100,000 African entrepreneurs starting with the Sahel region.

The most important thing is that we give economic hope and opportunity to our people and reduce the cases of fragility that we see across the continent.”

In 2018, ICRC and the Tony Elumelu Foundation partnered to sponsor 200 entrepreneurs from the North East and Niger Delta regions of Nigeria to catalyse and accelerate transformation while scaling impact in conflict-prone areas. The intervention is built on the existing Tony Elumelu Foundation’s USD 100 million commitment to empower 10,000 young African entrepreneurs in 10 years across the continent. Driven by the economic philosophy of Africapitalism,  it represents a bottom-up approach with the goal of creating millions of jobs and increased revenue on the continent.

Also Read Meet Sivi Malukisa, The Congolese Entrepreneur Whose Food Startup Is Promoting DRC Cuisine

The ICRC Forum took place in Lagos yesterday and gathered key stakeholders in government and humanitarian development to explore alternative approaches to impacting lives on the continent.  Present at the event were Princess Aderemi Adebowale, representing the Executive Governor of Lagos State, Mr. Babajide Sanwo-Olu; Mr. Babtunde Paul Runwase, President, Lagos Chamber of Commerce and Industry; Juan Luis Coderque Galligo, Head, New Financing Models, ICRC; and Mrs. Ifeyinwa Ugochukwu, CEO, Tony Elumelu Foundation; amongst others.

 

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Economy

World Bank funds 2nd phase of Takaful, Karama by $500M

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Marina Wes, the new country director of the World Bank in Egypt – Photo by Ahmed Maarouf/Egypt Today

CAIRO – 12 September 2019: Egypt signed on Wednesday, Sept. 11 an agreement with the World Bank to finance the second phase of the Social Security Nets Support Project, Takaful and Karama, by $500 million.

The agreement was signed by Minister of Investment and International Cooperation Sahar Nasr and Regional Director of the World Bank in Egypt Marina Wes.

Nasr clarified in a press release that the agreement is part of a $8 billion portfolio between Egypt and the World Bank.

She stressed that this project is an important part of the most important indicators to be followed up with the World Bank, which was announced at its annual meetings in Washington, which is investment in human capital.

Nasr expected that all components of this project will contribute to improving the income of Egyptian citizens.

She pointed out that this agreement came within the framework of projects and discussions that took place between President Abdel Fatah al Sisi, and the new president of the World Bank, who chose Egypt as the first destination in the Middle East.

The minister pointed out that the first phase of Takaful and Karama program contributed to the coverage of about 2 million families, or about 9.5 million citizens, revealing that the project reached beneficiary families in all governorates, and that women represent 88 percent of the total beneficiaries so far.

Based on this additional funding, the project will strengthen the social safety nets for an additional three years based on its achievements and willexpand its geographical scope, Nasrclarified, noting that the second phase is expected to include 12.8 million citizens, to reach 22.3 million.

The minister added that the additional funding will be allocated to develop the productive social protection network and employment program under the name of “Forsa”, and will continue to apply health and education considerations to the beneficiary families.

Meanwhile, Minister of Social Solidarity Ghada Waly explained that the signing of a second financing agreement comes to develop the program and works to expand its activities to shift from cash support only to productive support. This is addition to the transfer of assets and sustainable economic activities, which will achieve great returns for the beneficiary families.

Waly noted that the ministry has always worked to benefit from international experiences and practices in this regard, and from the recommendations of the international assessments.

“The objectives of the project have already been achieved in its first phase, and the funding for this phase has ended.We are working to provide highly concessional financing over a long period of more than 35 years, with a grace period of up to 5 years,” Minister Waly stressed.

For his part, the regional director of the World Bank in Egypt explained,“Through this project, we will continue our commitment to support Egypt’s efforts to develop human capital and create jobs, which are essential for the success of its reform program.”

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Wes pointed out that the project reflects the World Bank’s commitment to promoting human capital development through effective social safety nets targeting eligible groups.

She said the project came in line with the World Bank Group’s partnership with Egypt and the expanded regional strategy for the Middle East and North Africa to promote sustainable and inclusive growth through development of skills and livelihood opportunities for women and youth.

Egypt Today

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