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The Informal Economy and Entrepreneurial Development (Part 1)

According to World Bank estimates, between 25% and $40% of GDP in developing Asian and African countries
comes from the informal sector.

In Nigeria, Africa’s largest country, the figure might be close to 65% of GNP according to independent research. Truth is it’s well nigh impossible to quantify the exact size of Nigeria’s informal economy or its contribution to national indicators because relevant data for the country is wanting. It is often left to local newspaper reports to provide an occasional, much-needed glimpse into the actual state of Nigerian affairs.

In September 2008, the prominent Vanguard newspaper published an interview with a senior labour department bureaucrat who admitted that 90% of new jobs in the country were being accounted for by the informal sector. Quoting an unnamed survey, the official went on to add that the sector was also responsible for 80% of all non-agricultural employment and 60% of urban jobs. The figures are credible in source, but for a country now intent on revamping its economy for accelerated growth, they are incredible in import.

The informal economy is described as the sum total of economic activity that happens outside state regulation, which is neither taxed nor represented in a country’s GDP. It includes a range of goods and services – from handicrafts and street traders to farm labour and money lending – that, by tradition or necessity, operate outside formal regulation and are oftentimes marked by a lack of social benefits. In the case of Nigeria, it accounts for a considerable chunk of the formal economy.

Coming into a huge fortune of oil and natural gas reserves soon after gaining independence from British colonial rule in 1960, Nigeria’s nascent leadership tipped the balance towards over_dependence on non-renewable resources.

The country profited immensely from the oil boom of the 1970s, though its growing prosperity was accompanied by a simultaneous atmosphere of official neglect towards agriculture and small scale manufacturing.

In the decades following, Abuja reaped huge profits from oil exports (to the tune of an estimated $600 billion), leaving the country awash with petrodollars. However, extended civil strife and political instability permitted a continuation of outdated and non-inclusive policies that left the economy in tatters. The resulting ‘Nigerian Paradox’ describes the massive macroeconomic imbalances that have pushed a country brimming with natural and human resources into catastrophic poverty.

The effects of economic stagnation resulted in the rapid growth of a huge informal economy that was outside the state’s influence. The activities of this sector were largely deemed survivalist because of their inherent and almost exclusive dependence on personal initiative and risk-bearing capacity. Ironically, it is the same unorganised, informal economy that is now coming to Nigeria’s rescue.

The informal sector in Nigeria is a mammoth, heterogeneous operation that continues outside the purview of official regulation and monitoring. It transcends a wide variety of unorganised and often unobserved small-scale activities that have traditionally sustained the country’s urban and rural poor. These activities can be classified into three broad categories.

“Products: This sub sector comprises agricultural production, mining and quarrying, small-scale building and construction and machine-shop manufacturing. Traditional Nigerian crafts in clothing and furniture are other notable mentions.

“Services: This category includes a whole gamut of rural and urban services relating to education, health, counselling, labour, vehicle and mechanical repair, utility services, midwifery et all.

“Financial: Nigeria has numerous parallel finance structures operating mostly on unwritten rules. The most prominent example is Esusu, which offers loans by rotation from a contributory fund.

Although this is by no means an exhaustive definition, it does serve to highlight the extent and percolation of Nigeria’s informal economy. It is not without reason that many observers have called it the backbone of the country’s formal economy.

If Nigeria is to get anywhere near the Millennium Development Goals by 2015, or its indigenous 2020 targets, a lot depends on its management of this tremendous underground powerhouse. Theoretically at least, the economic challenges for Nigeria are effectively reduced to transforming these subsistence activities into entrepreneurial ventures, and a vehicle for genuine and broad based economic progress.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.