A new report on the nation’s informal sector by Moniepoint Inc, an online platform that provides an all-in-one payments, banking and operations platform for businesses and households, has stated that Nigerians who are 34 years old or younger, constitute the bulk of the population of owners of business in the country’s informal sector, adding that the youthful energy offers a tremendous opportunity for socio-economic transformation through innovation, entrepreneurship, job and wealth creation.
The report tagged the Informal Economy Report 2024, provides insights into the country’s information sector on important areas such as the ages of informal businesses, gender composition of owners, distribution among the six geopolitical loans, and the number of businesses owned by individual informal business owners, among others.
“Nigeria is home to approximately 40 million MSMEs, of which almost 90% are in the informal economy. The informal economy, also known as the shadow economy, comprises businesses that are typically described as untaxed and unregistered. And it is all around you: your family, neighbours, and even friends who have side hustles to supplement their income. This report weaves critical data, insights and expert perspectives to illuminate and help you understand Nigeria’s shadow economy,” Moniepoint stated.
Stating the relevance of digital payment and how it could boost MSMEs operations in the country, Tosin Eniolorunda, CEO, Moniepoint, said the adoption of digital payment system will open a wide array of digital financial service solutions to businesses.
He said, “Financial technology forms the basis on which much more can be created and explored. If people can pay digitally, commerce can thrive, and the ripple effect improves the economy. This shift towards digital payments is important, as it can open the door to a wider range of digital financial service solutions. These businesses, which are supported by access to payment – the mom-and-pop shops, the fruit seller and co – can benefit from access to credit, business management and full banking services.”
The report adds that more than half of the informal economy population is less than 34 years old. The largest group, making up 43 percent, is between 25 and 34. Women business owners account for 37.1% of people in Nigeria’s informal economy. The informal economy represents a crucial avenue for women’s economic empowerment in Nigeria and across Africa despite challenges in equity.
The report also states that businesses in Lagos account for 15.12 percent of Nigeria’s informal economy, with the south-south and north-central zones having the second and third highest number of businesses in retail and trade, respectively. It should also be noted that Lagos and the south-west have the highest number of informal businesses.
Retail & general trade, alongside food & drinks account for over half of the value of Nigeria’s informal economy. Businesses you would typically find in the retail & general trade category include mom & pop shops, restaurants, mini marts, and others that sell “daily necessities”, the report highlighted.
Stating what motivated her to start a business Sarah, one of the respondents, indicated that she only wanted to support her family.
She said, “I started my business about 2 years ago because I didn’t have a job and was staying at home. My children were growing up, and I needed to support my husband and care for them. Most of the money I earn goes to taking care of them.”
In terms of age, the report states further that 8 out of 10 businesses have been open for less than 5 years. Only 18.3 percent, or less than 2 out of 10 business owners in the informal sector, have been in business for more than 5 years. Less than 20 percent of businesses were over five years old, indicating the challenge of keeping businesses running for over five years.
The report also shows that 1 in 2 business owners in the informal economy say they have multiple businesses. Compared to how long they had been in business, we found an increased likelihood of owning multiple businesses (65%) in those who had been in business for over 6 years.
“Approximately 90% of businesses in the informal economy make less than N500,000 monthly profit. On the higher end of the spectrum, only about 1.3% of businesses in Nigeria’s informal economy have monthly profits of over N2.5m,” the report shows.
In terms of gender composition of informal business ownership, 9 out of 10 female-owned businesses in the informal economy earn less than N250,000 monthly. While the overall earning potential (profit) in the informal economy is low, we found a higher number of women in the lower earning categories.
Also, 51.6 percent of business owners in the informal sector started a business because they were unemployed. While unemployment was the leading motivation for starting a business for men, we found that insufficient income from more formal employment was the higher motivation among women. Only 2.8 percent of businesses in the informal economy were started out of passion.
In addition, 68.2 percent of the businesses stated that feeding and family expenses are the primary things they spend their money on. They also mentioned things like school fees and transportation, as additional expenses their business profits cover.
“Even though, individually, they look very small, when you lump all of them together as a collective, they’re actually a huge part of the economy in total. There’s no way the economy will thrive without actually taking care of these informal businesses” Tobi Amira, SVP Loans.
