Informal activities are those that occur outside of the legal framework and government regulation. The informal economy can be viewed as either the nature of the enterprise’s operations or the nature of its employee relationships.
So, the term informal economy covers a vast array of circumstances and events throughout the country. In contrast, working in the informal economy is frequently based on small or undefined workplaces, unsafe and unhealthy working conditions, unregulated, low levels of skills and productivity, low or irregular incomes, long working hours, and a lack of access to information, markets, financing, training, and technology.
Therefore, millions of Nigerians, particularly those living in Lagos – live, work, and trade in the informal sector and also employ the most defenceless residents. In terms of employment and output, the informal sector in Nigeria is larger than the formal in terms of employment and job creation, according to findings.
Therefore, the government may wish to have mass registration and identification and equally reach out to them through social interventions and palliative care
In certain instances, the informal economy is referred to as a “shadow economy” if it is involved with unlawful and criminal activities such as online scams, black markets, crime, manufacture, and smuggling of illegal items, or money laundering. One thing is certain regarding the informal economy: informality provides crucial economic possibilities for the poor and disadvantaged.
According to the International Monetary Fund (IMF), the informal economy employs approximately 5.5 million people in Lagos State alone—roughly three-quarters of the state’s 7.5 million labour force, and in the country as a whole, with nearly 200 million people, over 80 percent of the population works in the informal sector. Given the labour intensity, there is little doubt that the bulk of businesses and entrepreneurs are in the informal sector. Unlike the formal economy, the informal economy’s operations are not included in the country’s Gross Domestic Product (GDP). As a result, the GDP figure computation is a significant underestimate of the country’s GDP when the massive informal economy is excluded.
Meanwhile, the Nigerian informal sector continues to flourish in various situations and, based on demographic and economic data, may be the biggest in Africa.
Agreeably, across the country, it is easy to notice street traders, artisans, vendors, nano and micro-businesses, commercial buses, tricycles, motorcycles riders, domestic workers, and market traders, among others, all operating informally. Broadly speaking, you can easily see informality all around the country.
In the country, the informal economy has grown dramatically over the last two decades, with the root causes including elements related to the country’s economic context; decreasing levels of market regulation; weak policy frameworks; and socio-demographic drivers such as population growth, urbanisation, rising unemployment, widening inequality between rich and poor, and low-level education, including poverty.
The major driver of the informal economy, on the other hand, is that such enterprises do not need registration with relevant government authorities.
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Meanwhile, employment in the industry is appealing owing to the simplicity with which operations are carried out as a consequence of the absence of a bureaucratic regulatory framework and little or no formal educational qualification requirements.
There are multiple perspectives on the informal economy. Some associate it with unfair competition, low productivity, human rights abuses, and environmental degradation, while others associate it with entrepreneurship, flexibility and resilience.
Overall, the informal economy is enduring, but suitable regulations and policies are required to improve the sector and introduce formalisation. The decision for these businesses to formalise depends on the benefits that are derived from formalisation over the risks of remaining in the informal economy. If the former outweighs the latter, only then does formalisation seem like a viable option to the operators.
Clearly, there is a need for the government to embark on a series of measures, interventions, and support to encourage the formalisation of these businesses to sustain economic growth and development. As mentioned earlier, this informal sector is too large and important to be ignored. A concerted effort to identify and protect them is crucial for sustainability and economic development because huge potential tax revenue is lost yearly to this informality.
In recent times, the consequences of the Covid-19 pandemic, inflationary pressures, insufficient electricity, and high fuel cost have negatively impacted these informal businesses greatly. In this context, careful attention must be paid to the informal economy, and policy solutions need to be in place to encourage and induce formalisation. Besides, the IMF is urging national statistical agencies to gather information on the informal economy to help in policy formulations and to gather reliable data for economic planning.
Therefore, the government may wish to have mass registration and identification and equally reach out to them through social interventions and palliative care. These suggestions, if efficiently considered, might in turn reduce the size of the informality in the country.
