Only 2.8% of informal business owners in Nigeria are motivated by passion- Report

An analysis by Moniepoint’s Informal Economy report 2024, reveals that only 2.8 percent of founders in informal businesses were motivated by passion.

The overwhelming majority, accounting for nearly 9 out of every 10 informal businesses, are created out of necessity, driven by either mass unemployment or insufficient wages from formal employment.

It reveals that the primary driver for a majority of small business owners is not entrepreneurial passion, but the critical need to survive a brutal job market.

Read also:Hustle economy: 93% of Nigerians engaged in ‘survivalist’ informal employment

Specifically, 51.6 percent of informal business owners were motivated to start their venture because they were unemployed. Compounding this issue is the prevalence of underemployment, with 35.9 percent citing insufficient income from their existing, often more formal, employment as their main reason for starting a business.

Other findings indicated that 3.8 percent inherited their business, while 5.9 percent had other reasons. This data underscores the informal sector’s crucial role as a buffer against widespread joblessness and poverty wages in the formal economy.

The data exposes the shadow economy as a critical safety net, heavily reliant on a young demographic struggling with high rates of joblessness and low formal wages.

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The report, which analysed data from over two million businesses and included interviews with hundreds of owners, provides a stark look at the motivations behind the estimated 40 million Micro, Small, and Medium Enterprises (MSMEs) that forms the backbone of Nigeria’s informal sector.

This sector comprises untaxed and unregistered businesses, the street vendors, artisans, and ‘side hustles’, that account for almost 90 percent of all MSMEs in the country.

Motives of the MSME owner
The analysis of how these businesses originates reveals that the decision to start is overwhelmingly driven by financial necessity rather than entrepreneurial aspiration.

While unemployment was the leading motivation for men, insufficient income was the higher motivation among women, suggesting many are seeking supplementary income to combat the high cost of living despite holding down a main job.

A youth’s struggle and the unemployment crisis

The report underscores that this informal entrepreneurship is overwhelmingly a phenomenon of the youth.

More than half of the informal economy population is under 34 years old, with the largest single group (43 percent) falling between the ages of 25 and 34. This youthful energy, while presenting an opportunity for socio-economic transformation, is currently being channelled into survival rather than innovation.

The findings places the shadow economy firmly at the centre of Nigeria’s broader economic crisis.

Nigeria continues to battle a high unemployment rate, which has long been a significant socio-economic challenge. While official figures have fluctuated, estimates of the combined rate of unemployment (being available and seeking work) and underemployment (working few hours or in low-wage jobs unsuited to one’s skills) remain very high, often exceeding 50 percent for the youth cohort.

The reliance of over 35 percent of informal business owners on a side hustle due to poor pay in formal jobs directly reflects the problem of underemployment, where a degree or a regular job no longer guarantees a sufficient standard of living. This pushes a significant portion of the workforce, including professionals and graduates, to operate in the untaxed ‘shadow economy’ simply to make ends meet.

The crisis is, therefore, not just a lack of jobs, but a proliferation of poor-quality, low-wage jobs that fail to lift citizens out of poverty.