informal economy - phillips consulting...

Informal Economy Survey Report November , 2014

Informal Economy Survey Report November 2014


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.

3

Bayo Adesanya Associate Partner

Business Advisory Services [email protected]

http://www.phillipsconsulting.net/en/research-publication










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

TABLE OF CONTENTS

4


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.

5


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.

6


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.

7

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

Figure 1 – Examples of Activities in the Informal Economy

Informal Economy

Retail

Education

Transport

Small-scale farmers

Thrift cooperative societies (ajo, esusu)

Money lenders Accountants

Make-up artists Photographers Fashion designers Event planners Artisans Technicians

Agriculture

Financial Services

Other Service Providers

Street vendors Road-side sellers Hawkers Caterers

Private tutors

Private-hire taxi drivers Tricycle operators (marwa) Motorcycle operators

(okada)


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.

8

1. Coping strategies (survival activities)

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

Casual jobs, temporary jobs, unpaid jobs, subsistence agriculture, multiple job

holding

1 Claro, The informal economy symposium, 2012 - goo.gl/HrguSO 2 Schneider, 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

http://goo.gl/HrguSO


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 sub-contract 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.

9

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


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.

10


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.

11

Our 1,177 respondents mainly reside in Lagos, Abuja, Rivers,

Ogun and Oyo states

Figure 3: Respondents’ profile


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?

12

Figure 4

Most businesses are affected by the activities of the informal

economy, although this impact varies according to industry


Q: What effect do the activities of informal enterprises have on your business?

13

21% 22%12% 13%

29%27%

17% 19%31% 40% 43%

39%23%

73%62% 59% 57% 53% 52% 48% 48%

7%

100%

ICT Business / Professional

Services

Government

4%

Retail / Wholesale /

Trade / Distribution

Finance / Banking / Insurance

Consulting Manufacturing Agriculture / Fishing / Forestry

0%

Negative Effect

Positive Effect

Mixed Effect

Q: How has the informal economy affected your organisation?

Figure 5

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).


Q: What services in the informal sector does your organisation mostly make use of?

14

Most organisations are aware of the activities of informal enterprises,

and even frequently make use of their products and services

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.

Figure 7

Organisations operating in the formal sector most often patronise the providers of retail, food and utilities services in the informal sector


Q: What services in the informal sector do you personally make use of the most?

15

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.

Figure 8

Individuals most often patronise the providers of food, fashion

(e.g. tailoring) and transport services in the informal sector


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?

16

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.

51% 45%

32%

80%

39%

34%

Increasing unemployment rates

Large population

Low wages and the need to make ends meet

Difficulties in accessing credit and loans

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

High rate of urbanisation

Widespread success stories of those who expanded from the informal to the formal sector

9% 16%

22%

26%

Figure 9

The rise in unemployment rates in the country is deemed to be

the main driver of the informal sector in Nigeria


Q: Do you approve of the informal economy?

17

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?

3%

20%

21%

27%

27%

29%

34%

41%

43%

49%

81%

It allows employers and employees to increase their take-home earnings by …

It offers more flexibility than employment in the formal economy

It offers an alternative means of income for those already employed in the formal …

It is a good solution to a temporary situation (of unemployment; a new …

It provides goods and services that cannot otherwise be derived from the formal …

It provides low-cost goods and services

It drives the entrepreneurial aspects of the urban economy (for artists, …

It contributes to the overall growth of the Nigerian economy

It encourages creativity and self-expression

The informal sector allows a large population of the country to escape poverty

It mitigates the issue of unemployment in Nigeria

Figure 11

Yes No Undecided

Most respondents

approve of the

informal economy,

mainly because of

its role in helping

to reduce

unemployment in

the country

Figure 10


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.

18

Q: What strategies/policies/recommendations do you think the government should adopt to acknowledge and accommodate players in the informal economy?

Create policies that make the formalisation process as friendly (simple, straightforward and inexpensive) as possible

Acknowledge the informal economy by officially including it in the measurement of national GDP

Provide training to businesses that operate in the informal economy, to help them better manage their finances

Introduce incentives for formalising informal enterprises

Reduce corporate and individual taxation for those operating in the informal sector

Create mechanisms that allow for the effective local delivery of services, such as healthcare and education, within informal economy systems

61%

59%

43%

42%

42%

34%

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.

It is believed that the promotion of ‘friendly’ policies would be

the most effective means of encouraging formalisation of

activities in the informal sector


19

Non-payment of taxes is the main reason for disapproval of informal

economic activities

Q: Why do you not approve of the Informal Economy?

63%

51%

49%

37%

35%

22%

All enterprises should be made to pay tax and contribute to the economy of Nigeria

It hinders formal economic development

Workers in the informal sector are not offered the benefits derived from the formal sector

It undermines the rule of governance and law

Workers in the informal sector typically earn less and/or unstable income

The informal sector leads to a high tax burden on formal labour

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.

Figure 13


Q: What strategies do you think the Government should implement to control or reduce the growth of the informal economy?

20

53%

44%

38%

35%

35%

Use technology to monitor informal sector activities

Strongly enforce cashless policy by eliminating (or drastically reducing) the use of cash

Place the monitoring responsibility on firms, and fine any that are found to be dealing with suppliers/individuals operating in the informal

economy

Provide marginalised groups with better access to capital (e.g. microcredit)

Provide better training for government officials that monitor the informal economy

Delegate more authorities to tackle the informal economy

Increase the size of fines to deter would-be offenders

Dramatically increase physical policing and electronic surveillance to track and trap offenders

18%

18%

29%

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

Figure 14


Q: Based on current trends, how do you think the informal economy in Nigeria might evolve over the next 10 years?

21

66%

15% I expect minor growth in the informal economy

It will grow significantly

I foresee no change 7%

6% I expect slight shrinkage in the informal economy

It will shrink significantly

Government policy and enforcement actions will eliminate it completely

4%

2%

Most respondents (81%) believe that the informal economy will grow over the next decade, with a large proportion (66%) expecting significant growth (Figure 15).

Figure 15


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

22

Increasing capital

investment in the local economy Globalisation

Industrialisation

Increasing market/

price competition

Ease of tax avoidance

Rise of crowd funding An economic

recession High tax burden

Increases size of informal economy

Decreases size of informal economy

No impact on informal economy

100% 26 26 24 49 53

8 14 7 29 18 10 12 11

22 32 27

47 66 64 61 63 56 39 36

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.

Figure 16

Increase in investments into the country and globalisation are key economic drivers that can lead to growth in the informal economy


Socio-Demographic Drivers

23

Population growth,

urbanisation and rise in

unemployment rates

are all deemed to be

socio-demographic

drivers of the informal

economy

Figure 17

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.


Societal and Environmental Drivers

24

Growth in socially-focused businesses Low risk of detection

Increases size of the informal economy

Decreases size of the informal economy

No impact on informal economy

61% 28%

11%

54% 24%

22%

Increasing levels of corruption

49% 35%

16%

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

Figure 18

KEY


Governance Drivers

25

Increasing levels of

market regulation and

the tracking of

transactions could be

possible deterrents to

informal economic

activities

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).

Figure 19

KEY


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?

26

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

Figure 20


Q: Are you currently employed in the informal sector in Nigeria?

27

Q: If you work in the informal sector, are you self-employed or an employee?

I am self-employed I am an employee in the informal sector

43% 57%

Q: If you work in the informal sector, are you self-employed or an employee?

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

Figure 21

Figure 22

79%

21%

Yes, I am

No, I am not


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?

28

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).

Figure 23


Q: What is your monthly income?

29

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?

Very Satisfied

Satisfied Dissatisfied Very

Dissatisfied Neither

Satisfied nor Dissatisfied

10% 40% 32% 15% 3%

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


Q: Why have you chosen to work in the informal sector?

30

Wh

y h

ave

you

ch

ose

n t

o w

ork

in

th

e in

form

al se

ctor?

This is just the first step in formalising my business

I was not fully aware that I was operating in the informal sector

I desire an alternative form of income from my formal work

I am unable to secure formal employment

I desire independence and control over my work life

I am dissatisfied or uninterested in formal employment

I desire an undocumented source of income (to avoid taxes, etc.)

61%

45%

42%

27%

18%

15%

2%

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

Figure 26


Q: In what sector of the informal economy do you work?

31

Financial Services

Retail/Wholesale/ Trade/

Distribution

Business/ Professional

Services

Consulting

Media/Printing /Publishing

Food Services

ICT

23%

13%

8%

6%

6%

6%

6%

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.

Figure 27


DEMOGRAPHICS Respondent statistics:

32

Our respondents were

mostly male, between the

ages of 26 and 45, and

holders of either Bachelor’s

or Master’s degrees

Figure 28


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


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


35

OUR QUARTERLY SURVEYS

“The use of surveys is an effective way of gaining valid and quantifiable information”. The Business Advisory Services Division conducts quarterly surveys into topical economic and business issues in the country. Since 2013, these have included the reforms and ongoing developments in the Power, Telecommunications, and Financial Services, Health and Educational sector.

For surveys, contact: [email protected] or [email protected]

For surveys, contact: [email protected] or

[email protected]

For detailed reports visit http://www.phillipsconsulting.net/images/files

Power Sector reforms, Mobile Number Portability, Mobile Money


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 damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of or in connection with the use of the information contained in the survey. © 2013 PCL Business Advisory Services Division is focused on assisting investors in start-ups and project management, conducting diagnostic studies, applying scenario based planning, facilitating board retreats and business policy alignment, driving performance improvement initiatives, supervising business turnarounds and sustaining total quality management. Our work is practical, with a strong emphasis on implementation. The division's engagements are with major public and private organisations across various sectors of the economy.

informal economy - phillips consulting...

Documents