July 10, 2024

68% of informal business income spent on family expenses, new report reveals

Company Income Tax rises 53% to N532.4bn in Q1’22

By Victoria Ojeme

A new study reveals that operators of informal businesses in Nigeria spend a staggering 68.2% of their income on feeding and family expenses.

The Informal Economy Report 2024, released today, provides a comprehensive look at the spending habits and economic impact of the country’s vast informal sector.

Babatunde Olofin, Managing Director of Moniepoint MFB, said the report will be relevant in enhancing policymakers’ understanding of the informal economy.

He stressed the sector’s critical role in providing employment and income opportunities, especially for those outside the formal job market.

He said “The findings of this report are expected to inform policy decisions and drive efforts towards supporting and developing Nigeria’s informal economy, which continues to be a vital, yet often overlooked, component of the nation’s economic landscape.”

According to the report, the informal sector contributes over half of Nigeria’s Gross Domestic Product (GDP), highlighting its crucial importance to the national economy. However, the study also reveals that only 29.7% of income generated by informal business owners is reinvested, with a mere 3 out of 10 prioritizing reinvestment.

The report paints a complex picture of income distribution within the sector. While 72.3% of informal businesses generate over ₦1 million in monthly revenue, individual earnings tell a different story, with most operators earning less than ₦250,000 per month. Only 1.3% of businesses in the informal economy earn above ₦2.5 million monthly.

Retail and general trade emerge as the leading industry within the informal economy, accounting for 24% of all informal businesses. Together with food and drinks, fashion and beauty, and agriculture, these sectors represent 58.6% of Nigeria’s informal businesses.

The report also highlights challenges faced by the sector, particularly in accessing credit. Despite 70.1% of informal businesses having accessed credit, the primary sources remain friends and family (70.7%), followed by loan apps/platforms (15.1%) and traditional banks (12.2%).