The 2024 Informal Economy Report highlights that businesses within Nigeria’s informal sector contribute over half of the country’s Gross Domestic Product (GDP). The report reveals that a significant portion (68.2 per cent) of income from these businesses goes towards feeding and family expenses.
In response, the Federal Government has reiterated its commitment to supporting small business operators in the informal sector.
At the launch event in Abuja recently, the Minister of Industry, Trade, and Investment, Dr. Doris Uzoka-Anite assured attendees that the government would provide incentives to these operators as part of its broader strategy to support the sector. She acknowledged that the informal sector often appears to be forgotten but emphasized that moving forward, it would benefit from federal interventions and incentives.
“We are really grateful to Moniepoint for conducting this report. It gives us the basis and foundation to provide targeted intervention as part of the government’s approach to supporting the informal economy,” said Anite. “The informal economy plays a significant role in Nigeria’s economy. We can now bring them up to enjoy incentives that the government is providing to the broader economy as well.”
The report provides detailed insights into the economic dynamics of the informal sector. It highlights that unregistered businesses, including street vendors, artisans, and service providers, collectively contribute over half of Nigeria’s GDP. Despite their substantial revenue, with 72.3 per cent of these businesses generating more than N1,000,000 monthly, individual profits are much lower, with most earning less than N250,000 monthly. Only a small fraction, about 1.3 per cent, earn above N2.5 million monthly.
Retail and general trade lead the informal economy, accounting for 24 per cent of all informal businesses. This category, along with food and drinks, fashion and beauty, and agriculture, collectively represent more than 58.6 per cent of informal businesses in Nigeria.
Access to credit remains a significant challenge for informal businesses. The report notes that while 70.1 per cent of informal businesses have accessed credit, the primary sources are friends and family (70.7 per cent), loan apps/platforms (15.1 per cent), and traditional banks (12.2 per cent). Furthermore, despite the prevalence of informal businesses, tax contributions are minimal, with about 90 per cent paying some form of tax, primarily in the form of market levies.
Charles Odili, Director-General of the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), emphasized the importance of small businesses in driving the Nigerian economy.
“Small businesses are the engine of the Nigerian economy. The informal sector is the piston that provides momentum,” Odili stated. He highlighted the agency’s efforts to formalize these businesses to increase access to crucial resources such as finance, which aids in developing brand value and financial history, thus indicating creditworthiness and attracting investment.
However, fear of taxes remains a significant obstacle to formalization. Odili assured that the government is enforcing existing tax exemptions designed to allow small businesses room to grow. Additionally, SMEDAN is working with the Association of Local Governments of Nigeria (ALGON) to address illegal taxation and harassment, which discourage formalization and negatively impact the ease of doing business.
Representing Vice President Kashim Shettima, his Special Assistant on Financial Inclusion, Nurudeen Zauro, reiterated the Federal Government’s commitment to economic and financial inclusion. He emphasized support for efforts to realize President Bola Tinubu’s renewed hope agenda.
Mansur Soro, Chairman of the House Committee on Small and Medium Enterprises (SMEs), highlighted the legislature’s commitment to supporting the informal sector, especially women. He assured that the National Assembly would give the report full attention, subjecting it to necessary review and internalization.
Babatunde Olofin, Managing Director of Moniepoint Microfinance Bank, explained that Moniepoint aims to create an ecosystem where everyone experiences financial freedom. Using technology, the financial organization empowers over 5 million businesses and offers various payment platforms and banking services.
Olofin noted that the Informal Economy Report 2024 was a collaborative effort between Moniepoint, the Federal Ministry of Trade, Industry, and Investment, and SMEDAN. He expressed a strong commitment to unlocking Nigeria’s full potential and providing much-needed support to the most vulnerable households in society. “The Report sheds more light on this vibrant, indispensable sector, offering fresh insights into critical issues and serving as critical results for enhancing human capital development and poverty reduction,” he stated.