Nigeria has slipped into a second recession in five years following a decline in GDP growth for the second consecutive quarter. Before the emergence of the pandemic, the country’s economic state was staggered and the global spread of COVID-19 tipped it further down the rabbit hole. It must be said, of course, that the economic fallout of the pandemic is not strictly a Nigerian or even an African problem. The global economy is reeling from the effects of the pandemic, as the world’s largest and most vibrant economies struggle to fend off crises.
Currently, as the West battles a second wave, the glimmer of economic hope seems to rest solely on the arrival of the COVID-19 vaccine. The current economic crisis rocking Nigeria has hit particularly hard on the country’s informal sector which contributes an estimated 70 percent to the GDP. As such, exiting this recession is largely dependent on how the government, through its policies, considers ways to alleviate the strain on the informal sector.
In most low-income countries, the informal sector is the pulse behind the labour force. While several factors contribute to a large informal sector in emerging markets, none is as significant as high inequality rates. These factors have always existed within the context of Nigeria’s socio-economic state; however, the COVID-19 pandemic worsened these already critical issues. Stemming the spread of the virus is an important feature in preventing a collapse in our healthcare system and a preliminary approach to attaining a form of normalcy before a widespread vaccine rollout.
The economic impact of lockdowns and other social distancing measures has disproportionately affected informal workers and their incomes truncated. Globally, there has been a 60 percent decline in its earnings for those on the fringes of the formal economy. While it is easy for an investment banker to successfully conduct his business via the internet on his computer at home despite a lockdown, a fish seller in Alade market or construction workers in Apapa do not have the same luxury. The added hardship due to the rising rate of food and energy prices is further contributing to poverty cycles and has further weakened workers who are already grappling with demand constraints and lower earnings.
Though it is difficult to fully quantify the reach of the informal sector due to its uncoordinated system, the Nigerian Ministry of Labour and Productivity has estimated that the sector is responsible for up to 90 percent of job openings in the country. This decline in productivity of the sector has contributed to Nigeria’s rising unemployment rate at 27.2 percent in October 2020 from 23.1 percent in 2018.
Government intervention has been crucial in alleviating some of the challenges facing the sector. Through conditional cash transfers of up to N20,000 a month and the distribution of palliative care, the impact of the economic crisis has been softened to some degree. Nevertheless, social protection programmes are not enough and cannot yield sustainable economic growth. The simple fact is that sustainable growth will happen only when the informal sector is included in the formal economy.
The COVID-19 pandemic forms the perfect backdrop for addressing these challenges. There is an evident need to change the narrative by reforming some of our institutions and evaluating current economic norms. One of these reforms includes introducing policies to address inequality in all its different facets. There’s no denying the decline in the prominence of the informal sector over the last 20 years and the gendered impact of the pandemic on informal workers is glaring as women often make up the majority of workers in the sector. Similarly, inequality is the central issue impeding access to quality education and access to finance. Improving access to and quality of education is probably the single most powerful way to lower informality. An educated workforce breeds skilled workers who are then able to contribute competitively to the country’s economy. The growth of Nigeria’s economy and the push beyond the informal sector rests in investing holistically in the youth through education and relevant skill acquisition.
Beyond education, the consistent commitment to policies that democratise access to finance can improve the economic potential of informal businesses. Lack of finance is a major obstacle to success for many entrepreneurs as it limits the possibility of expansion and in some cases survival. Enhanced opportunities for inclusion in the mainstream economy is a proven tool to reduce poverty and inequality. New data from the National Financial Inclusion Strategy (NFIS) has shown that the financial inclusion rate grew to 63.2 percent in 2019, representing a 4.8 percent growth compared to the 58.4 percent achieved in 2018. This growth was influenced by collaborative efforts by stakeholders to close the inclusion gap. However, an October FI progress report developed by the CBN and EFInA showed that despite the small progress made, the country is not on track to meet financial inclusion targets for 2020.
Effective stakeholder coordination is necessary to fast-track the implementation and achievement of financial inclusion goals. In this case, a collaboration between stakeholders in both the formal and informal sectors is crucial to the expansion of financial inclusion as actors within the two ecosystems are able to reach more customers and provide tailored products and services to their niche. For example, Savings at the Frontier (SatF) has launched a multi-year partnership between MasterCard Foundation and Oxford Policy Management in Ghana, Tanzania and Zambia. This partnership is set up to assist formal financial service providers in connecting with informal savings mechanisms (ISMs) delivering improved service to consumers. Through this collaboration, financial inclusion is advanced while creating win-win partnerships. The expansion of financial inclusion in Nigeria’s is largely reliant on the formal and informal sectors’ resolve to establish mutually beneficial relationships.
Identity is the foundation of formalising the informal economy. But over 100 million Nigerians have no identity and cannot be formally identified. These include the poorest and the most vulnerable groups – women and girls, the less-educated people, migrants, internally displaced persons, people with disabilities and many people living in rural and remote areas.
Harmonising information systems in Nigeria will help to close some of the existing gaps and the exclusion of millions of informal workers who do not possess formal identification. But harmonisation itself is an uphill battle, with more than 13 federal agencies and three state agencies offering ID services in Nigeria, most of which do not communicate with each other, each achieved at a high cost.
There has been some progress in this area, with the government inaugurating a steering committee to ‘fast-track the implementation of the strategic roadmap for accelerating digital identity development for Nigeria’. The committee’s mandate was to review the legal and regulatory framework for digital identity development with a clear objective to accelerate a digital identification system that can grow the enrolment database by 187 million between 2023 and 2025.
The recent declaration by the Ministry of Communications and Digital Economy, which ordered telecommunications companies to block SIM cards (in two weeks) not linked to the National Identification Number seems to want to fast-track this process.
While well intended, this move further highlights the harmonisation challenge and ignores the fact that the information they are seeking is largely already available across several databases. Nigeria has a population of over 200 million people and roughly 198 million active (not unique) mobile lines. The telecommunications industry is a key driver of growth and since 2010, the government has made data capture and SIM card registration compulsory. Clearly, much of this data is available and all that is required to effectively utilise it is a commitment to digitisation and materialising stakeholder collaboration – a priority area for 2021 and beyond.
The role of finance in reducing the number of workers outside of the formal economy can drive sustainable development and improve Nigeria’s economic potential. An increased formal workforce will equate to increased revenue from taxation and reduced poverty levels. At the heart of this change is access to financial services which will incentivise informal businesses to take the economic leap.
Frankly, Nigeria cannot achieve these robust objectives without leveraging technology and digitisation. If this year has taught us anything, it is that technology, in every sphere of society, is the way forward. Across the continent, we are seeing governments utilise this understanding to support SMEs such as the launch of national QR Code payment systems in markets in Ghana and Senegalese telecommunications companies testing 5G connection. For the informal sector to safeguard the future of work in Nigeria, we must ensure income stability and the only way to achieve that is through investment. Between where we are now and where we are hoping to be is action. In 2021, Nigeria must move beyond flimsy promises and hollow policy drafts. Building a strong and competitive economy requires more commercial incentives for investment targeted at the informal economy coupled with niche products and services capable of driving inclusive growth.
*Bello is an independent journalist based in Nigeria.
