By Peter Osalor
Spain provides a sterling example of how it can be done right. Through the 1990s, the Spanish government pursued a radical reforms programme, easing corporate taxes and regularising labour laws.

The outcomes was a drastic 40% fall in the unemployment rate over a period of six years, fuelled by massive job opportunities in the informal sector. Even though tax rates had been slashed, the government augmented revue collected from small companies by over 75% by bringing more of them under regulation.

Even though Nigeria has been the second largest economy in the continent after South Africa for years now, independent researchers have long been pointing out that the ranking is unrealistic in the sense that it takes no account the vast Nigerian parallel economy.

The theory may not be unlikely but is near impossible to prove because sufficient relevant data for Nigeria is unavailable. There is no doubt however that the country’s future position in world affairs hinges considerably on the development and formalisation of its massive informal economy. In terms of attitude, what it requires foremost is the suspension of conventional perceptions with regards to the unorganised sector: in other words, a paradigm shift in economic policy outlook and execution.

The process of Nigerian economic reforms that began in 2001 has seen concrete steps aimed at boosting the private sector:
-    A bank consolidation programme was initiated in 2004 to fortify financial institutions and enhance credit access to the private sector.
-    Rapid disinvestment in large enterprises was started with the privatisation of mining, communication and oil marketing corporations.

-    The government deregulated oil prices in 2007 and enforced the national Fiscal Responsibility bill and the Pubic Procurement bill.

Some of these measures have produced tangible results, cutting inflation and boosting international currency reserves. Their long term effects though are yet to be observed or examined.

In December 2008, the government of President Umaru Yar’Adua presented budget proposals for withdrawal of $200 million in African Development Bank trust funds to issue 10 year government bonds. The move was part of the treasury’s efforts to plug a substantial budgetary deficit amounting to almost 4% of GDP.

Sadly, short term_measures such as this otherwise unremarkable decision have defined Nigerian economic policy for more than the last half century. What it needs in order to shed its Third World credentials is a unified, innovative strategy that reverses overdependence on oil and actively seeks to formalise its informal economy.

Specifically, Nigeria needs to come up with practical measures to convert its traditionally survivalist practices into entrepreneurial ventures that contribute revenue, create more jobs and provide innovative products and solutions.

A number of Abuja’s policy directives in recent years have sought to reform the old economy to ostensibly promote small businesses and seed an entrepreneurial revolution. Besides its obvious contributions in terms of employment and income generation, the Nigerian informal economy is responsible for a number of positive effects
-    It allows a productive outlet for a huge population of Nigerians who are self employed by choice or necessity.
-    It creates economic competition and promotes innovative business practices relevant to local realities.
-    Most importantly, it mobilises Nigeria’s significant human resource pool that would otherwise be unused, or worse, ill used.

In the Nigerian context, formalising the informal economy is synonymous with enterprise development and long_term macroeconomic growth. An endeavour of such moment calls as much for creative innovation in policy design as it does motivated implementation.

In light of the country’s troubled past, its government would also do well to build popular consensus on important issues before trying to enforcing radical laws. Far reaching change, however, will only come with the realisation that leveraging the informal economy is key to resolving the age old Nigerian paradox  a country of enormous resources with extreme poverty.