The informal trade sector is made up of businesses that are unregistered and neither taxed nor monitored by the government. Entrepreneurs in this sector mostly run micro or small businesses with the primary aim of making ends meet with little or no intention of expanding the scale of their business. For them, developing a careful strategy to grow their businesses is not a priority as long as they have a healthy customer base that is capable of keeping the business afloat.
The informal trade sector has long been a key driver of economic growth, job creation, and entrepreneurship in Nigeria. The International Monetary Fund (IMF) reported that the informal sector contributed approximately 65% to Nigeria’s GDP in 2020. Also, the National Bureau of Statistics (NBS) estimated that the informal sector accounted for over 65 percent of Nigeria’s total employment in 2021.
Despite their unappreciated significant contributions to Nigeria’s economic growth, entrepreneurs in the informal sector face several challenges that inhibit the effective running of their businesses and the potential growth of the sector as a whole. The implementation of the CBN Cashless policy in January 2023 brought about significant challenges for businesses operating in this sector. While the policy aimed to promote financial inclusion and digitisation, it had an initial negative effect, causing business hardship and disruptions. Fast forward to today, the digital transformation of the informal trade sector is gradually taking and has propelled it towards rapid improvement and economic advancement.
Before this recent turnaround, the policy had its drawbacks as businesses within the informal trade sector encountered difficulties adjusting from cash-based transactions to digital payments. Limited access to technology, lack of awareness about digital payment options, and resistance to change created barriers that hindered digital transformation in the informal sector. Introducing the policy brought about a dip in revenue, operational inefficiencies, and frustrations among entrepreneurs in the informal sector. However, businesses that could see beyond these initial challenges began to embrace digital tools and solutions and, consequently, discovered the immense potential for growth and prosperity that can be achieved by leveraging digital transformation in the informal sector.
Let us examine the positive impact of digital transformation on the informal trade sector since adopting the CBN Cashless policy.
One noticeable positive impact of the policy is the increased financial inclusion within the informal trade sector. Digital payment solutions, such as mobile banking apps and point-of-sale systems, have gained more adoption, which has provided entrepreneurs with easier access to formal financial services. Financial inclusion in the informal sector has empowered businesses to a greater effect by enabling them to manage their finances more efficiently, access credit facilities, and invest in growth opportunities.
Digitization has significantly enhanced operational efficiency within the informal trade sector. Digital tools such as inventory management systems, online marketplaces, and e-commerce platforms have streamlined processes, minimised manual record-keeping, and reduced operational costs. These digital efficiency tools have allowed businesses to focus more on core business operations, improve productivity, and expand their customer base, which was never a priority for most entrepreneurs in the informal sector.
Digital transformation has also facilitated market reach and expansion for businesses in the informal trade sector. Online platforms and digital marketing strategies have provided opportunities for small-scale businesses to showcase their products and services to a wider market. This has also coalesced with the growing trend of e-commerce in Nigeria. By leveraging digital channels, entrepreneurs have overcome geographical barriers, connected with customers nationwide, and tapped into new market segments.
The CBN cashless policy has catalysed technological adoption and innovation within the informal trade sector. Entrepreneurs have embraced digital tools and solutions, exploring avenues such as mobile banking, online payment systems, and social media marketing. This increased technological literacy has fostered innovation, allowing businesses to stay up-to-date, adapt to changing consumer preferences, and stay competitive in the evolving market landscape.
As we reflect on the journey of Nigeria’s informal trade sector amidst the CBN Cashless policy and subsequent digital transformation, it is evident that the initial challenges engendered a resilient spirit amongst entrepreneurs and paved the way for tremendous growth in the sector. The sector has rapidly embraced digital solutions, leveraging technology to overcome obstacles and create new opportunities for sustainable development.
Recent statistics highlight the significant contribution of the informal trade sector to Nigeria’s employment and GDP. The sector’s growing recognition and adoption of digital technologies further emphasise the need for digital transformation initiatives. Policymakers, financial institutions, and technology providers should work together to create an enabling environment for digital transformation.
In conclusion, it is vital to continue supporting the informal trade sector’s digital transformation. Collaborative efforts between the government, financial institutions, technology providers, and trade associations should focus on fostering digital literacy, improving access to affordable technology, and offering tailored support services. These actions will empower entrepreneurs, promote innovation, and fuel the inclusive economic growth of the informal trade sector.
Adeola, head of growth and operations, Shara Nigeria. Connect with him on social media @sheunadeola on Instagram, Twitter and Seun Adeola on LinkedIn.