The informal economy in Nigeria is a powerful engine of survival, entrepreneurship, and grassroots economic activity. From market traders and street vendors to tailors, mechanics, and ride-hailing drivers, informal workers form the backbone of Nigeria’s job market, especially in the absence of enough formal employment opportunities.
Despite being largely undocumented, untaxed, and unregulated, the informal sector is estimated to account for over 65% of Nigeria’s employment and more than 50% of the country’s GDP. This massive contribution makes it impossible to ignore.
In this article, we delve deep into the importance, challenges, and potential of Nigeria’s informal economy, highlighting its impact on job creation, income generation, and social stability. We also explore how the government and private sector can support and formalize parts of the informal sector to build a more inclusive economy.
What Is the Informal Economy?
The informal economy refers to economic activities and jobs that are not regulated or protected by the government. Workers in this sector often operate without formal contracts, social security, or labor protections. These include:
- Street vendors and hawkers
- Artisans (tailors, carpenters, mechanics)
- Commercial transport workers (okada riders, keke drivers)
- Domestic workers
- Smallholder farmers
- Online freelancers
- Market traders
- Informal construction workers
Unlike the formal sector, where employees pay taxes and receive pensions, informal workers usually operate under the radar. Yet, they are essential for economic survival, particularly in urban and semi-urban areas.
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The Size of the Informal Economy in Nigeria
According to the International Labour Organization (ILO) and National Bureau of Statistics (NBS):
- Over 80% of working Nigerians are employed in the informal sector.
- The sector contributes more than 50% to Nigeria’s GDP.
- Women make up over 60% of informal workers, especially in markets and agriculture.
- The sector absorbs most of the unemployed youth, especially secondary school leavers and non-degree holders.
This shows the vital importance of the informal economy in job creation and poverty reduction.
How the Informal Economy Supports Job Creation in Nigeria
1. Absorbing Unemployment
With formal jobs unable to match Nigeria’s population growth, the informal economy plays a critical role in absorbing millions of job seekers annually.
Example: Many university graduates become freelancers, ride-hailing drivers, or digital vendors, rather than wait for white-collar jobs.
2. Creating Opportunities for Women and Youth
The informal sector is the largest employer of Nigerian women and provides flexible, accessible work to young people across urban and rural areas.
- Women dominate sectors like food vending, tailoring, and hairdressing.
- Youth engage in logistics (bike delivery), informal tech work, or digital marketing without degrees.
3. Supporting Rural Economies
Informal farming, trading, and processing are major activities in rural Nigeria. These small-scale activities help keep rural-urban migration in check and sustain families.
4. Encouraging Entrepreneurship
Many Nigerians start informal businesses to escape poverty or due to lack of formal jobs. The low entry barrier makes it a training ground for entrepreneurship.
Examples include:
- A roadside mechanic evolving into a full auto-shop owner.
- A fashion apprentice starting their own boutique.
5. Stimulating the Local Economy
Informal workers circulate money within their communities, supporting:
- Local markets
- Transportation systems
- Daily consumption goods
This fosters a dynamic local economy, even without formal structures.
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Key Sectors Dominated by the Informal Economy
| Sector | Common Jobs |
|---|---|
| Agriculture | Smallholder farmers, local produce sellers |
| Trade | Street vendors, market traders |
| Transport | Okada, keke, taxi, delivery agents |
| Manufacturing | Artisans, welders, furniture makers |
| Construction | Bricklayers, masons, casual laborers |
| Services | Hairdressers, cleaners, tailors |
| Tech and Digital Work | Freelancers, Instagram vendors, influencers |
Challenges Facing Nigeria’s Informal Economy
1. Lack of Legal and Social Protection
Informal workers operate without:
- Employment contracts
- Minimum wage protections
- Health insurance
- Pension schemes
This makes them vulnerable to exploitation and financial instability.
2. Inconsistent Income and Job Insecurity
Since informal work is unregulated and seasonal, income levels fluctuate. A roadside vendor or casual laborer may go days without work.
3. No Access to Credit or Financial Services
Most informal businesses lack:
- Bank accounts
- Collateral
- Business registration
This prevents them from accessing loans or formal investment.
4. Government Harassment
Many informal workers, such as hawkers and keke drivers, face harassment, extortion, or eviction by state authorities, often without alternatives.
5. Poor Working Conditions
Informal workers often:
- Work long hours under unsafe conditions
- Lack access to toilets, water, and shelter
- Are exposed to environmental and health hazards
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Strategies to Support and Integrate the Informal Economy
1. Financial Inclusion
Government and fintech companies should promote mobile money, micro-loans, and savings tools tailored to informal businesses.
Examples:
- Moniepoint and OPay provide digital wallets and loans.
- Bank of Industry (BOI) offers microcredit to market traders.
2. Skill Development and Training
Programs should focus on improving the skills of informal workers. Examples include:
- Vocational training for artisans
- Digital literacy for online vendors
- Agritech workshops for farmers
This increases productivity and income potential.
3. Formalization and Business Registration
Government should simplify CAC registration and offer tax incentives for informal businesses to register formally.
Benefits:
- Access to contracts and loans
- Legal protection
- Visibility in national data
4. Social Protection Schemes
Expand health insurance and pension access to informal workers through schemes like:
- NHIS (National Health Insurance Scheme)
- Micro-Pensions (by PENCOM)
5. Policy Reforms
Government needs to:
- Stop unnecessary harassment of informal workers.
- Invest in better infrastructure for markets and roadside stalls.
- Recognize the informal sector in national economic planning.
Case Study: Informal Sector Empowerment in Lagos
Lagos State has implemented initiatives like:
- LSETF (Lagos State Employment Trust Fund) to support micro-businesses
- Lagos Market Infrastructure Projects to improve market stalls
- CodeLagos for digital training
These efforts are helping bridge the gap between informal and formal economies.
Benefits of Integrating the Informal Economy into the Formal System
| Benefits | Impact |
|---|---|
| Tax revenue generation | Boosts government income |
| Improved worker welfare | Social security and health benefits |
| Access to formal credit | Business growth and expansion |
| National data accuracy | Better economic planning |
| Reduced inequality | Inclusive growth for marginalized groups |
FAQs
**1. What is the informal economy?
The informal economy includes all work and business activities that are not regulated, taxed, or protected by the government.
**2. How large is the informal economy in Nigeria?
It contributes over 50% of Nigeria’s GDP and employs about 80% of the workforce, making it one of the largest in Africa.
**3. Why is the informal sector important in Nigeria?
It helps reduce unemployment, supports rural economies, empowers women, and drives local consumption.
**4. How can informal businesses get support?
They can access micro-loans, digital tools, training programs, and register formally with CAC for more opportunities.
**5. What are the risks of working in the informal sector?
Risks include job insecurity, poor working conditions, no health coverage, and vulnerability to government crackdowns.
Conclusion
The informal economy in Nigeria is not a problem to be solved—it is a potential to be harnessed. It remains a major source of employment, especially for youth and women, and keeps the local economy running even in tough times.
With the right support, policies, and digital innovation, Nigeria can empower millions of informal workers, transform micro-businesses into small enterprises, and make the informal economy a formal force for national development.
Let’s stop ignoring the invisible engine of Nigeria’s economy—it’s time to invest, integrate, and uplift the informal sector for a better and more inclusive future.
References
- ILO (2023). Women and Men in the Informal Economy – https://www.ilo.org
- World Bank (2023). Nigeria Economic Update – https://www.worldbank.org
- BOI Nigeria – https://www.boi.ng
