Informal Economy Survey Report
Informal
Economy
SurveyReport
November 2014
November , 2014
Informal Economy Survey Report
November , 2014
November , 2014
Informal Economy Survey Report
Foreword
The informal economy is often overlooked, and its importance to the economies of countries
tends to be understated. Indeed, it makes up a vital part and a large proportion of Nigeria’s
economy, and employs millions of Nigerians. It also tends to be viewed as the space in which
lower income groups operate, therefore requiring minimal skills and education for entry.
However, the informal economy also includes entrepreneurs who learn valuable lessons before
going on to formalise their businesses, as well as employees who want to gain relevant skills
that would be useful in the formal sector.
In our “Informal Economy in Nigeria” survey, we asked 1,177 Nigerians what they think of the
informal economy, as well as what they perceive its impact to be on the formal economy.
Based on our findings, we were able to draw the following conclusions about the informal
economy:
 It is more relevant than ever to our country’s economy, and grows mainly as a result of
increasing poverty and unemployment levels
 It is linked to the formal economy, and often provides good and services for organisations
in the latter
 Many work in the sector because they are unable to secure formal employment
 Most choose to work in the sector to survive, rather than a burning desire to start a
business
 Business owners cite a complicated formalisation process and added costs as the main
reasons why they choose not to transition to the formal sector
In the following report, we look into the informal economy with the aim of better understanding
its characteristics and trends.
Please visit http://www.phillipsconsulting.net/en/research-publication to access all
our survey reports.
Bayo Adesanya
Associate Partner
Business Advisory Services
[email protected]
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TABLE OF CONTENTS
Executive Summary
5
Introduction and Background
7
Objectives of the Study
11
Survey Methodology
11
Survey Findings on the Informal Economy
12
-
Part 1: Impact
12
-
Part 2: Public Perception
16
-
Part 3: Drivers
22
-
Part 4: Prevalence
26
-
Part 5: Profile of the Average Worker
28
Survey Demographics
32
Discussion and Conclusion
33
List of Figures
34
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EXECUTIVE SUMMARY
The informal economy (also known as the informal sector) is a major part of the Nigerian
economy, and provides goods and services to millions of Nigerians. In addition, it is a major
provider of employment, especially for those who are unable to secure work in the formal
sector. Despite the importance of the informal sector, it is often overlooked and
misunderstood. The informal economy comprises commercial activities that are not fully
regulated by the government and other public authorities; however, these activities are legal,
albeit conducted in an irregular manner.
In order to gain a better understanding of activities within the informal economy, as well as
gauge the public perception of its relevance and overall impact, an online survey was carried
out in September 2014. A total of 1,177 responses were obtained and analysed.
The major findings of the survey are as follows:
Impact
The majority of respondents (56%) indicated that the informal sector has an effect on their
organisation, with many specifying that this effect is positive. The sector’s impact varies from
one industry to the other e.g. survey respondents indicated that the Agriculture industry (73%)
benefits more from informal sector activities than the ICT sector (48%). Most organisations
are aware of the activities of informal establishments, and even make use of their products
and services (52%); only a few respondents (5%) expressed that they have no affiliations with
the informal sector. Many (23%) believe that their organisations patronise providers of retail,
food (e.g. catering) and utilities (e.g. electricity and water) services the most. Individuals
however, are more likely to patronise food (48%), fashion (46%) and transport (34%) service
providers in the informal sector.
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Public Perception
Most respondents (80%) believe that the informal economy is quite established in Nigeria,
due to the country’s high rate of unemployment. As a result, 73% of respondents approve of
the informal economy due to its role in helping to solve this problem. 63% of respondents
that do not approve of the sector believe that all enterprises should contribute to the growth
of the economy by paying tax, something that many workers in the informal sector fail to do.
Those that approve of the sector believe that policies should be created to make the
formalisation process as straightforward and inexpensive as possible (61%), in order to
encourage/support those operating in the informal economy. Those that do not approve
think that technology should be used to monitor activities in the sector, so as to detect and
discourage informal activity (53%). Based on current trends, 66% of respondents foresee
significant growth in the informal sector over the next decade.
Major Drivers
The major economic drivers of the informal sector have been identified as an increase in
capital investment into the country (66%), globalisation (64%), industrialisation (62%) and
increasing market/price competition (62%). Socio-demographic drivers are population
growth (78%), urbanisation (69%), rise in unemployment (63%) and the growth of the middle
class (60%). Societal and governance drivers include a growth in socially-focused businesses
(61%) and decreasing levels of market regulation (52%) respectively.
Prevalence
Most respondents (79%) do not currently work in the informal sector. Those who do work in
the sector are either self-employed (44%) or are in paid employment (56%). Workers in the
sector are also more likely to be male than female; of our respondents who have worked in
the sector, 78% are men and 22% are women. Expectedly, employment in the sector is
influenced by the level of educational qualifications attained; the more educated the
respondents were, the less the likelihood that they would be employed in the informal sector.
Most National Diploma (ND) holders (63%) have been employed in the informal economy,
compared to just 39% of Master’s degree holders. The majority of workers in the informal
sector (63%) are employed on a full-time basis. Most (66%) earn less than N100,000 per
month, and only half (50%) are satisfied with their employment status. This survey reveals that
61% work in the sector because they were unable to secure formal sector employment. The
highest number of informal economy workers (23%) provides financial services to others.
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INTRODUCTION & BACKGROUND
The informal sector is a significant part of any country’s economy, and contributes to its
overall economic growth. In recent years, it has generated a significant amount of interest,
which has resulted in a considerable outpouring of literature on the subject. This is largely
due to the fact that although not fully understood, the informal economy has been globally
accepted as a crucial generator of income, goods and services, and employment, especially
for low-income earners.
Definition
When a commercial activity undertaken by an individual or establishment is not fully
regulated, protected, and tracked by government and public authorities, it belongs in the
informal economy. Examples of informal employment workers include: street traders,
subsistence farmers, small manufacturers, service providers (e.g. freelance photographers
and hairdressers, private taxi drivers, carpenters), etc. (Figure 1). The informal economy is
also sometimes referred to as the shadow, hidden, irregular, underground or invisible
economy.
Agriculture

Retail




Small-scale farmers
Financial Services



Thrift cooperative
societies (ajo, esusu)
Money lenders
Accountants
Informal
Economy
Education

Private tutors
Transport
Other Service Providers






Street vendors
Road-side sellers
Hawkers
Caterers
Make-up artists
Photographers
Fashion designers
Event planners
Artisans
Technicians



Private-hire taxi drivers
Tricycle operators (marwa)
Motorcycle operators
(okada)
Figure 1 – Examples of Activities in the Informal Economy
The informal sector is a vital part of any country’s economy, by
creating employment opportunities and contributing to GDP;
however, it is unregulated and workers are often subjected to
the whims of their employers
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The International Labour Organisation (ILO) describes the informal economy from two
perspectives: 1) coping strategies; and 2) unofficial earning strategies, with the latter including
both unregistered and criminal activities (although there can be overlaps between the two
categories) (Figure 2). However, much of the informal economy is legal and accepted by
governments around the world.
1.
Coping strategies
(survival activities)
Casual jobs, temporary jobs,
unpaid jobs, subsistence
agriculture, multiple job
holding
2. Unofficial earning strategies
(illegality in business)
A. Unofficial business activities:
tax evasion; avoidance of
regulations; no registration of
the company
B. Underground activities:
crime
Figure 2 – Types of Informal Activity Adapted from Chambwera, MacGregor and Baker, 2011
Global Trends
The global informal economy is estimated to be worth $10 trillion and accounts for about 80% of
the global workforce1. In a 2010 study2 involving the analysis of the informal economies in 162
countries between 1999 and 2007, it was estimated that the informal economy represents at least
30% of Gross National Product (GNP) in 107 countries, and at least 50% in 18 countries.
Countries such as Bolivia (66%), Zimbabwe (62%), Tanzania (57%), Nigeria (56%) and Thailand
(51%) were among the countries whose informal activities contributed more to the overall
economy than the activities of the formal sector.
A traditional view of the informal economy is that it is transient, and will eventually be absorbed
into the formal economy, contributing to modern, industrial growth. However, despite predictions
of its disappearance, the informal economy has flourished in many countries, growing even faster
than the formal economy. The appeal of the informal sector lies in its relative flexibility, ease of
entry and lack of defined structures, thereby providing the opportunity to respond to individuals’
immediate employment needs.
Employment in the informal sector can generally be broken down into the following categories3:
Self-employment (involving workers in mostly small, unregistered businesses):
• Single-person operations
• Employers of informal businesses
Wage employment (usually workers without employment benefits):
• Employees of informal businesses
• Employees in formal enterprises, not entitled to employment benefits
• Domestic workers
• Unregistered workers
• Some temporary workers
The informal economy symposium, 2012 - goo.gl/HrguSO
Buehn and Montenegro “Shadow Economies All over the World”, 2010
3 Chambwera, MacGregor and Baker, “The Informal Economy – A primer for development professionals on the importance of the
informal economy un developing countries”, 2011
8
1 Claro,
2 Schneider,
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Link between the Formal and Informal Economies
The relationship between the formal and informal economies has generally been regarded
from two opposing viewpoints: dualism and structuralism4. The dualists believe that both
economies operate independently of each other and have very few linkages, with the
informal economy being the “lesser” of the two. On the other hand, structuralists regard the
two economies as being fundamentally linked. Although both perspectives have their merits,
empirical evidence suggests that the latter theory may hold more weight. Indeed, the formal
and informal economies are linked, with the informal economy often trading with, and
providing goods and services for the formal sector. In fact, many formal establishments hire
employees under informal circumstances. For example, large manufacturing firms may subcontract certain parts of a manufacturing process to outside hires, some of whom may be
located in other countries. These sub-contractors, although working for a formal
organisation, may be operating in the informal economy, due to the fact that these workers
may not be afforded the employment benefits that formal employees enjoy. In some cases,
this informal connection may even be illegal. This is evidenced by the use of sweatshops by
some large corporate organisations, where employees are made to work in socially
unacceptable conditions for long hours, and provided with salaries below the minimum
wage.
The Informal Economy in Nigeria
The informal economy in Nigeria is estimated to account for 57.9% of Nigeria’s rebased
GDP, according to the United Nations Development Programme (UNDP). The National
Bureau of Statistics (NBS) also states that the sector consists of over 17 million businesses
and enterprises, and contributes significantly to job creation. It was estimated that between
July 2012 and June 2014, 2.48 million jobs were created, with the informal economy
contributing the most at 1.41 million (57%), the formal economy contributing 40 percent,
and the public sector contributing 3%.
A recent study by the Small and Medium Enterprises Development Agency (SMEDAN)
revealed that MSMEs account for 80% of the total number of enterprises in Nigeria, and
75% of the total employment base (employing 32.4 million Nigerians). In addition, micro
enterprises comprise 98% of all MSMEs in the country, whereas small and medium
enterprises comprise 1% each. Although a large proportion of these enterprises will be
classified under the formal sector, it is probable that an even larger proportion operate in the
informal economy.
Activities in the informal economy are often carried out using cash-based transactions.
Electronic forms of payment, through bank transfers mobile payment platforms and the use
of cheques are not common and as such, records of informal transactions are often not
available. As a result, the income earned by the informal sector worker would not be
reported for taxation.
The informal sector is estimated to account for 58% of Nigeria’s GDP,
and is responsible for creating more jobs than the formal sector
4 WIEGO,
“The Informal Economy: Definitions, Theories and Policies” 2012
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The informal economy is poorly regulated and so workers are often able to increase their
take-home earnings by avoiding taxation and social contributions. It is also common for
entrepreneurs in the sector to seek to reduce costs associated with wages and social benefits.
Due to the non-payment of taxes by some of these enterprises, there are fewer funds
available for the government to improve infrastructure, and provide other public goods and
services in the sector.
In addition, informal workers are often underpaid and not offered the same levels of basic
employee protection as their counterparts in the formal sector. For example, workers in the
informal sector may be offered wages that are lower than the national minimum wage, and
are frequently not provided with benefits such as health insurance and retirement pensions.
Other employment standards of working hours and working environment conditions are also
often disregarded.
It is therefore clear that although the informal economy offers numerous benefits to the
Nigerian economy, it needs to be better structured and regulated in order for it to be
effectively integrated into the formal economy. As a result, the Federal Government is
currently taking steps to gain a better understanding of the activities in this sector (size,
structure, overall contribution, etc.).
According to the Africa Development Bank, major drivers of the growth in informal economic
activities include a limited access to capital, lack of education, poor skills and lack of
training.
This report presents the findings from our survey into the informal economy in Nigeria.
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OBJECTIVES OF THE STUDY
This survey was designed to provide answers to the following questions:
1. What is the impact of the informal economy?
2. What is the general public’s perception of the informal economy?
3. What are the major drivers of the informal economy?
4. What is the prevalence of informal employment?
Survey Methodology
Questionnaires were administered electronically over a period of 6 weeks between
September and October 2014. A total of 1,177 responses were obtained from participants
in 33 states, as well as Abuja (Figure 3). These responses were analysed using a simple
statistical analysis tool.
Figure 3: Respondents’ profile
Our 1,177 respondents mainly reside in Lagos, Abuja, Rivers,
Ogun and Oyo states
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SURVEY FINDINGS
Part 1: Impact
Most respondents (56%) indicate that their organisations are directly impacted by activities of
informal enterprises (Figure 4). Of this group, many state that this impact is positive, with a
few indicating that the effect can be both positive and negative. These effects differ across
the various industries; for example, respondents that are employed in the
agriculture/fishing/forestry and manufacturing industries (73% and 62% respectively
indicated a positive effect) are more likely to benefit from informal sector operations than
those in the ICT industry (48% indicated a positive effect) (Figure 5). This could be due to the
ongoing reforms in the agriculture and manufacturing sectors e.g. the Agricultural
Transformation Agenda (ATA) implemented by the Federal Ministry of Agriculture and Rural
Development, which seeks to create employment opportunities and ensure food security in
the country. As a result of the Growth Enhancement Support (GES) scheme under ATA,
millions of small-scale farmers across the country, many of whom operate in the informal
economy, now have access to seeds and fertilisers.
Q: Is your business affected by the activities of informal enterprises?
Figure 4
Most businesses are affected by the activities of the informal
economy, although this impact varies according to industry
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Q: What effect do the activities of informal enterprises have on your business?
Positive Effect
Mixed Effect
Negative Effect
100%
73%
62%
59%
17%
19%
21%
22%
53%
57%
52%
48%
48%
23%
27%
0%
Agriculture / Manufacturing
Fishing /
Forestry
Consulting
31%
40%
43%
39%
29%
12%
Finance /
Banking /
Insurance
7%
Retail /
Wholesale /
Trade /
Distribution
4%
Government
13%
Business /
Professional
Services
ICT
Figure 5
Q: How has the informal economy affected your organisation?
Figure 6
More than half of respondents (53%) indicate that their organisations are aware of their clients who
operate in the informal sector, and even patronise their services. Only a few (5%) stated that their
organisations do not deal with customers who operate in the informal sector at all (Figure 6).
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Informal Economy Survey Report
Most organisations are aware of the activities of informal enterprises,
and even frequently make use of their products and services
Q: What services in the informal sector does your organisation mostly make use of?
Figure 7
Retail, food and utilities (23% each) rank as the informal services that are patronised the
most by organisations in the formal sector (Figure 7). These services could range in the form
of food derived from informal caterers and roadside sellers, to the use of freelance
electricians and plumbers.
Organisations operating in the formal sector most often
patronise the providers of retail, food and utilities services in
the informal sector
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Informal Economy Survey Report
Q: What services in the informal sector do you personally make use of the most?
Figure 8
Individuals are more likely to patronise informal providers of food (48%), fashion (46%) and
transport (34%) services (Figure 8). These could include catering, tailoring, styling and private
taxi services.
Individuals most often patronise the providers of food, fashion
(e.g. tailoring) and transport services in the informal sector
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Informal Economy Survey Report
Part 2: Public Perception
Many of our respondents have a favourable view of the informal economy. This is mainly due
to the fact that the sector helps to mitigate the high unemployment problem in the country.
Q: Why do you think the informal economy is so relevant in Nigeria?
Low wages and the need to
make ends meet
Large
population
Difficulties in accessing
credit and loans
51%
Increasing
unemployment
rates
45%
39%
34%
80%
32%
26%
Widespread success stories of
those who expanded from the
informal to the formal sector
22%
9%
16%
High rate of urbanisation
Excessive costs associated
with the formal economy
(e.g. tax contributions)
Excessive regulatory
barriers for entry into
the formal sector
Entrepreneurial spirit
of Nigerians
Increasing demand for
low cost goods and
services
Figure 9
The overwhelming majority (80%) believe that the increasing unemployment rate is the main
reason for the high prevalence of the informal economy in Nigeria (Figure 9). Other main
drivers of the informal sector were deemed to be the large population of the country (51%)
and low monetary earnings (45%). It is interesting to note that the entrepreneurial spirit of
Nigerians (26%) is not widely considered as a reason for the high proliferation of the
informal sector activities. This shows that the need to survive in a country where poverty levels
are still quite high is a much stronger driving force than the innate desire to start a business
in Nigeria.
The rise in unemployment rates in the country is deemed to be
the main driver of the informal sector in Nigeria
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Informal Economy Survey Report
Q: Do you approve of the informal economy?
Yes
No
Undecided
Figure 10
The majority of our survey participants (73%) approve of the informal economy for various
reasons, while a small number (12%) do not. Only a few (15%) are ambivalent (Figure 10).
Q: Why do you approve of the informal economy?
It mitigates the issue of unemployment in
Nigeria
81%
The informal sector allows a large
population of the country to escape poverty
49%
It encourages creativity and self-expression
43%
It contributes to the overall growth of the
Nigerian economy
41%
It drives the entrepreneurial aspects of the
urban economy (for artists,…
34%
It provides low-cost goods and services
29%
It provides goods and services that cannot
otherwise be derived from the formal…
It is a good solution to a temporary
situation (of unemployment; a new…
Most respondents
approve of the
27%
informal economy,
27%
mainly because of
It offers an alternative means of income for
those already employed in the formal…
21%
its role in helping
It offers more flexibility than employment in
the formal economy
20%
to reduce
It allows employers and employees to
increase their take-home earnings by…
unemployment in
3%
the country
Figure 11
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Informal Economy Survey Report
It is believed that the promotion of ‘friendly’ policies would be
the most effective means of encouraging formalisation of
activities in the informal sector
The vast majority who approve of the informal economy do so because of its role in tackling
the issue of unemployment in Nigeria (81%) (Figure 11). This statistic is consistent with the
responses gained on the reasons for the high proliferation of activities in the sector. In
addition, almost half (49%) believe that the informal sector plays a key role in poverty
alleviation. Notably, by far the least cited reason for approval of the informal economy is the
tendency for those working in the sector to increase their monetary earnings by avoiding
taxation (3%). This suggests that tax avoidance is not a major consideration for those
working in the informal sector.
Q: What strategies/policies/recommendations do you think the government should
adopt to acknowledge and accommodate players in the informal economy?
61%
Create policies that make the formalisation process as
friendly (simple, straightforward and inexpensive) as
possible
59%
Acknowledge the informal economy by officially including
it in the measurement of national GDP
43%
Provide training to businesses that operate in the informal
economy, to help them better manage their finances
42%
Introduce incentives for formalising informal enterprises
42%
Reduce corporate and individual taxation for those
operating in the informal sector
34%
Create mechanisms that allow for the effective local
delivery of services, such as healthcare and education,
within informal economy systems
Figure 12
To encourage and possibly integrate informal enterprises into the formal sector, most
respondents (61%) believe that policies that make the formalisation process as
straightforward and inexpensive as possible should be promoted (Figure 12). By removing
the barriers to formalisation (high costs and regulatory hurdles associated with the formal
economy ), more informal enterprises may be encouraged to formalise their businesses.
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Non-payment of taxes is the main reason for disapproval of informal
economic activities
Q: Why do you not approve of the Informal Economy?
All enterprises should be made to pay tax and
contribute to the economy of Nigeria
63%
It hinders formal economic development
51%
Workers in the informal sector are not offered
the benefits derived from the formal sector
49%
It undermines the rule of governance and law
37%
Workers in the informal sector typically earn
less and/or unstable income
35%
The informal sector leads to a high tax burden
on formal labour
22%
Figure 13
Most of the respondents that do not approve of the informal economy (63%) believe that all
businesses are obligated to pay taxes, in order to contribute to the total economy and
productivity of the country (Figure 13). 51% believe that activities in the sector hinder the
development of the formal economy. 49% disapprove of the informal sector because workers
are not offered the same benefits as those in the formal sector.
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Q: What strategies do you think the Government should implement to control or reduce the
growth of the informal economy?
Use technology to monitor informal sector activities
53%
Strongly enforce cashless policy by eliminating (or drastically reducing)
the use of cash
44%
Place the monitoring responsibility on firms, and fine any that are
found to be dealing with suppliers/individuals operating in the informal
economy
38%
Provide marginalised groups with better access to capital (e.g.
microcredit)
35%
Provide better training for government officials that monitor the
informal economy
35%
Delegate more authorities to tackle the informal economy
29%
Increase the size of fines to deter would-be offenders
18%
Dramatically increase physical policing and electronic surveillance to
track and trap offenders
18%
Figure 14
Many strategies can be implemented in order to control the growth of the informal economy,
with more than half of our respondents (53%) believing that technology should be used to
track commercial activities, in order to identify informal businesses (Figure 14). Many others
(44%) believe that the strict implementation of the CBN’s cashless policy would help to
reduce the size of the informal economy, as all transactions would be made visible through
the use of electronic payment systems. Very few (18%) think that increasing fines for
“offenders” or increasing the number of monitoring officers would be effective means of
curbing informal economic activities.
The use of technology to monitor the activities of informal
enterprises could be an effective means of curtailing growth in
the sector
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Q: Based on current trends, how do you think the informal economy in Nigeria might evolve
over the next 10 years?
66%
15%
7%
It will grow significantly
I expect minor growth in the informal
economy
I foresee no change
6%
I expect slight shrinkage in the informal
economy
4%
Government policy and enforcement actions
will eliminate it completely
2%
It will shrink significantly
Figure 15
Most respondents (81%) believe that the
informal economy will grow over the
next decade, with a large proportion
(66%) expecting significant growth
(Figure 15).
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Part 3: Drivers
There are several factors that could impact on the size of the informal economy, and these
have been grouped into four main clusters; Economic, Socio-demographic, Societal &
Environmental, and Governance drivers. Each of these can either have a positive or negative
effect.
Economic Drivers
Increasing
capital
investment in
the local
economy
Increases
size of
informal
economy
Decreases
size of
informal
economy
No
impact on
informal
economy
Globalisation
Industrialisation
Increasing
market/
price
competition
66
64
61
63
26
22
32
27
14
7
8
10
Ease of tax
avoidance
Rise of crowd
funding
An economic
recession
High tax
burden
47
39
36
26
24
49
53
18
29
12
56
100%
11
Figure 16
Most (66%) believe that increasing capital investments into the local economy would increase
the size of the informal economy, whereas an economic recession (49%) and a high tax
burden on individuals and businesses (53%) would most likely decrease the level of activities
in the informal sector (Figure 16). In a similar vein, the injection of capital and foreign direct
investments (FDIs) into the economy would result in the creation of jobs, infrastructure
development, higher incomes, and the overall growth of the economy. This would have a
knock on effect on the informal sector, since the latter frequently provides goods and services
to the formal sector.
Increase in investments into the country and globalisation are
key economic drivers that can lead to growth in the informal
economy
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Socio-Demographic Drivers
It is logical that increasing population sizes
would invariably increase the size of the
informal economy. This is corroborated by the
results of the survey, with most respondents
(78%) believing that population growth would
encourage the growth in number of informal
businesses (Figure 17). Other key drivers of
the informal economy include an increase in
urbanisation (69%), unemployment (63%) and
the growth of the middle class (60%).
Respondents also believe that increased
poverty levels (52%) and access to education
(52%) would increase the size of the informal
economy, although a small number
surprisingly believe the opposite. Most (43%)
do not think that increased ethnic, tribal or
religious divisions would have any effect on the
size of the informal economy.
Population growth,
urbanisation and rise in
unemployment rates
are all deemed to be
socio-demographic
drivers of the informal
economy
Figure 17
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Societal and Environmental Drivers
Growth in socially-focused businesses
61%
Low risk of detection
28%
54%
11%
24%
22%
KEY
Increasing levels of corruption
Increases size of the informal economy
Decreases size of the informal economy
No impact on informal economy
49%
35%
16%
Figure 18
On the societal and environmental front, 61% of the respondents believe that an increase in
the number of socially-focused businesses would increase the size of the informal economy.
A socially-focused business is one that constantly seeks to address social issues, such as
education and employment problems, and empowerment of the disadvantaged. Therefore,
an increase in the number of establishments that help tackle these issues is believed to
increase the number of informal establishments. A low risk of detection is determined to be a
driver of the informal economy (54%), most likely because individuals would be drawn to
informal sector work if there is little chance of being caught and penalised (Figure 18).
A growth in socially-focused businesses is judged to be a main
societal driver of the informal economy
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Governance Drivers
If the quality of public sector services
in the country were increased,
opinions are split as to whether this
would have a positive (44%) or
negative (43%) effect on the size of
the informal economy. Predictably,
most (52%) believe that increasing the
levels of market regulation would
decrease the size of the informal
economy. It is also generally believed
that a stricter enforcement of statutory
minimum wages would decrease the
size of the informal economy (45%).
Similarly, 52% state that the
monitoring and tracking of all
transactions would decrease the size
of the informal economy, as these
informal workers would be at risk of
being tracked and penalised
(Figure 19).
Increasing levels of
market regulation and
the tracking of
transactions could be
KEY
possible deterrents to
informal economic
activities
Figure 19
25
November , 2014
Informal Economy Survey Report
Part 4: Prevalence
44% of our respondents have worked in the informal economy at some point in their careers. Of
this group, 78% are male, while 22% are female (Figure 20). The majority of our total survey
respondents were male.
Q: Have you ever been employed in the informal sector in Nigeria?
Figure 20
As expected, employment in the informal sector is influenced by the level of educational
qualifications attained. As the degree qualifications obtained by our respondents become
more advanced, the likelihood of them being employed in the informal sector also reduces
(Figure 20). National Diploma (ND) holders are more likely to have been employed in the
informal sector (63%) than those with more advanced degrees. Master’s degree holders are
the least likely to have been employed in the informal sector (39%).
44% of our respondents have been employed in the informal sector and
most of them are male. The majority are also graduates of Polytechnics
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November , 2014
Informal Economy Survey Report
Q: Are you currently employed in the informal sector in Nigeria?
79%
No, I am not
Yes, I am
21%
Figure 21
Q: If you work in the informal sector, are you self-employed or an employee?
Q: If you work in the informal sector, are you self-employed or an employee?
43%
57%
I am self-employed
I am an employee in the
informal sector
Figure 22
Only 21% of respondents are currently employed in the informal sector (Figure 21) and most
of them are employees (57%). The others (43%) are business owners (Figure 22).
Most respondents do not work in the informal sector; those that do
either own their own businesses or are employees
27
November , 2014
Informal Economy Survey Report
Part 5: Profile of the Average Worker
The average employee in the informal sector works full-time, and usually earns less than
N100,000 per month. Many sought employment in the informal sector because they failed
to find white collar jobs. However, they are also more likely to be satisfied with their current
professional status.
Q: Is your work in the informal sector full time or part time?
Figure 23
The majority of respondents (62%) who work within the informal sector do so on a full time
basis while 38% are part-timers. Nearly half of the latter group combine their regular jobs in
the formal sector with a second one in the informal sector. (Figure 23).
28
November , 2014
Informal Economy Survey Report
Q: What is your monthly income?
Figure 24 Comparisons of income per month, between the formal and informal sectors
Most workers in the informal sector (66%) earn N100,000 or less per month, compared to the
minority in the formal sector (32%). Almost half of our respondents from the formal sector (45%)
earn above N200,000 per month, compared with just 12% of those in the informal sector (Figure
24). It is uncommon for informal sector workers to earn more than N350,000 per month (9%).
On a more positive note, 50% (i.e. half) of the respondents who work in the informal sector are
satisfied with their jobs, compared with only 18% who are not (Figure 25).
Q: How satisfied are you with your employment in the informal sector?
10%
Very
Satisfied
40%
Satisfied
32%
Neither
Satisfied nor
Dissatisfied
15%
3%
Dissatisfied
Very
Dissatisfied
Figure 25
Informal sector workers typically earn less than those in the formal
sector and half of them are satisfied with their current work status
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November , 2014
Informal Economy Survey Report
Why have you chosen to work
in the informal sector?
Q: Why have you chosen to work in the informal sector?
I am unable to secure formal employment
61%
This is just the first step in formalising my business
45%
I desire independence and control over my work life
42%
I desire an alternative form of income from my formal work
27%
I am dissatisfied or uninterested in formal employment
18%
I was not fully aware that I was operating in the informal sector
15%
I desire an undocumented source of income (to avoid taxes, etc.)
2%
Figure 26
61% of respondents are employed in the informal sector because they could not find jobs in
the formal sector (Figure 26). The aspirations of informal entrepreneurs are represented by
the 45% of respondents who see their current status as the first step towards formalising their
own businesses. Interestingly, by far the least cited reason for workers who choose to be
employed in the informal sector is that they desire to earn money that is not monitored by the
government and public authorities (2%). This therefore shows that these workers are much
more concerned with securing any form of employment in order to make ends meet, than
earning a tax-free income.
Many respondents seek informal employment after failing to find
jobs in the formal sector
30
November , 2014
Informal Economy Survey Report
Q: In what sector of the informal economy do you work?
Financial Services
23%
Retail/Wholesale/
Trade/
Distribution
13%
Business/
Professional
Services
Our respondents work in various
sectors of the informal economy,
including Construction, Events
Planning, Real Estate, Agriculture,
Consulting, Healthcare, Finance,
etc. However, most of those from
the informal sector work in
financial services (23%) (Figure
27). These include providers of
credit facilities and managers of
funds. Others that provide informal
accounting services to individuals
and small companies are also
included in this group.
8%
Consulting
6%
Media/Printing
/Publishing
6%
Food Services
6%
ICT
6%
Figure 27
31
November , 2014
Informal Economy Survey Report
DEMOGRAPHICS
Respondent statistics:
Our respondents were
mostly male, between the
ages of 26 and 45, and
holders of either Bachelor’s
or Master’s degrees
Figure 28
32
November , 2014
Informal Economy Survey Report
DISCUSSION AND CONCLUSION
The informal sector is a vital part of Nigeria’s overall economy, and contributes significantly
to GDP. The employment and poverty-alleviation opportunities created for millions of
Nigerians are the obvious benefits of working in the sector, as well as the relative freedom it
offers entrepreneurs to run their businesses. In addition, the sector is a major provider of
goods and services for both lower and high income groups, and even provides services to
the formal sector.
It is important to note that the informal economy in Nigeria continues to grow as a result of
increasing unemployment rates, large population numbers and the high prevalence of
poverty in the country. Many Nigerians that work in the informal sector do so as a result of
an inability to obtain employment in the formal sector.
There are two major employment categories in the informal economy: self-employment
(entrepreneurship) and wage employment. Most respondents work in the sector full-time and
gain their primary source of income from the sector. A few of our respondents also work in
the sector on a part-time basis, in order to supplement their earnings from the formal sector.
Although on average, workers in the informal sector earn much less than the formal sector
employees, these workers interestingly express a general satisfaction with their professional
status. This is due to the fact that informal employment offers these individuals independence
and control over their work-life balance. Some respondents also stated that the benefits of
informal employment include being given the chance to build valuable skills and gaining
work experience that can then be used as leverage to secure employment in the formal
sector. Nearly half of the entrepreneurs in the informal economy view their informal
operations as a prelude to setting up businesses in the formal sector.
While operations in the informal sector may impact formal businesses negatively, the sector
is viewed in a positive light by most of our survey respondents. Most also actively make use
of informal services, both professionally and personally. Therefore, the formal and informal
sectors can be seen to have a mutually beneficial relationship. Individuals are often likely to
patronise informal providers of food (e.g. catering) and fashion (e.g. tailoring) services.
Organisations also frequently patronise providers of food services in the informal sector, as
well as retail products and services. Our survey findings therefore support the “structuralist”
view of the informal sector, whereby both the formal and informal economies are intrinsically
linked.
This survey also revealed that the formalisation process for informal enterprises is a key area
for consideration for Government. Many informal sector entrepreneurs fear expansion into
the formal sector, due to the added costs associated with the latter. It is therefore vital that
the formalisation process for informal businesses be made more transparent and less
expensive. Most respondents who own their own businesses indicated that they would
welcome efforts to reduce the barriers to formalisation. Policies to reduce taxes for small
businesses, and make the formal registration process faster and easier should therefore be
promoted. In addition, disciplined implementation of the cashless policy by the Central Bank
of Nigeria (CBN), which aims to reduce the use of physical cash for transactions and
encourage the use of electronic payment platforms, would serve to decrease the number of
cash-based transactions which are the life line of virtually all informal economic activities.
33
November , 2014
Informal Economy Survey Report
LIST OF FIGURES
Figure 1: Examples of activities in the informal economy
Figure 2: Types of informal activity
Figure 3: Respondents’ profile
Figure 4: Is your business affected by the activities of informal enterprises?
Figure 5: What effect do the activities of informal enterprises have on your business?
Figure 6: How has the informal economy affected your organisation?
Figure 7: What services in the informal sector does your organisation mostly make use of?
Figure 8: What services in the informal sector do you personally make use of the most?
Figure 9: Why do you think the informal economy is widespread in Nigeria?
Figure 10: Do you approve of the informal economy?
Figure 11: Why do you approve of the informal economy?
Figure 12: What strategies/policies/recommendations do you think the Nigerian Government should adopt
to acknowledge and accommodate the informal economy?
Figure 13: Why do you not approve of the informal economy?
Figure 14: What strategies/policies/recommendations do you think the Nigerian Government should
implement to control and reduce the informal economy?
Figure 15: Based on current trends, how do you think the informal economy in Nigeria might evolve over
the next 10 years?
Figure 16: Economic drivers of the informal economy
Figure 17: Socio-demographic drivers of the informal economy
Figure 18: Societal and environmental drivers of the informal economy
Figure 19: Governance drivers of the informal economy
Figure 20: Have you ever been employed in the informal sector in Nigeria?
Figure 21: Are you currently employed in the informal sector in Nigeria?
Figure 22: If you work in the informal sector, are you self-employed or do you work for an informal
establishment?
Figure 23: Is your work in the informal sector full time or part time?
Figure 24: Comparisons of income per month, between the formal and informal sectors
Figure 25: How satisfied are you with your employment in the informal sector?
Figure 26: Why have you chosen to be employed in the informal sector?
Figure 27: In what sector of the informal economy do you work?
Figure 28: Survey demographics
34
OUR QUARTERLY
SURVEYS
Informal Economy Survey Report
November , 2014
Power Sector reforms, Mobile Number Portability,
Mobile Money
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For surveys, contact: [email protected] or
[email protected]
Informal Economy Survey Report
Disclaimer
The information contained in this survey is for
general information purposes only and
represents only the views and opinions of
respondents and not essentially that of Phillips
Consulting Limited. In no event will Phillips
Consulting Limited be liable for any loss or
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November , 2014