Informal Sector 9 5. In India, Nigeria and Brazil, the number of workers in the informal economy affected by the lockdown and other containment measures is substantial," the ILO report released in Geneva said. If you continue to use this site we will assume that you are happy with it. Cite as; Tonuchi, E. J., Idowu, P., Adetoba, O. O., & Mimiko, D. O. However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes … Findings from the MIMIC model revealed that: the size of the informal economy in Nigeria ranges between 47 and 67 percent from 1970 to 2018, and averages 56 percent of the GDP over the same period; and that the nation, on average, losses 56 percent of her potential tax revenue yearly to informality, with the estimated tax revenue loss being around ₦3.5 trillion in 2018. According to Magbagbeola (1996), the informal sector in Nigeria refers to economic activities in all sectors of the economy that are operated outside the purview of government regulation. The International Labour Organisation (ILO) estimates that the average size of the informal economy as a percentage of gross national income (GNI) in sub-Saharan Africa (SSA) is 42.3%. They have been peer reviewed but have not been subject to a formal external peer review via IFPRI’s Publications Review Committee. The informal sector was historically recognized as an opposition to formal economy, meaning it included all income earning activities beyond legally regulated enterprises. Several criteria have been used to define the informal sector, such as size, ease of entry, legal status, ownership and management, and technology (Cole and Fayissa, 1991). The federal government and other stakeholders must roll out measures to provide temporary support to the informal sector. ; The Informal Sector in Nigeria: From Neglect to Recognition. Econometric models Informal sector activities are normally characterized by small size of activities, few workers (often less than six) and working in make shift structures. They state that small firms do not scale down to avoid paying taxes, but their limited investment needs and the narrow nature of their operations make stable property rights unimportant and the gains from civic participation flimsy. Nigeria’s informal sector is also the employer of the largest number of citizens. Informal sector There has been a lot of focus on the fact that Nigeria's tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. Nigeria is the largest country in Africa, and the largest concentration of black people in the world with a land area of close to 1 million square kilometers, and a population of well over 125 million. Nigeria Deposit Insurance Corporation (NDIC) 17 11. To address this issue, this paper applies for the first time the light intensity approach (instead of GDP). • Services industries that contributed large shares of Nigerian GDP in 2014 include wholesale and retail trade (17.6%), real estate (8.4%), and telecommunications and information services (8.3%) (figure 1) . The size of the informal economy of Nigeria as at 2018 is 67% of the GDP. Specifically, the results indicate that informal sector was about three-quarters of GDP in 2010. unemployment rate was 12.3%, rising sharpl y . Its borders span 4,047 kilometres (2,515 mi), and it shares borders with Benin (773 km or 480 mi), Niger (1,497 km or 930 mi), Chad (87 km or 54 mi), and Cameroon (including the separatist Ambazonia) 1,690 km or 1,050 mi. Nigerian GDP at purchasing power parity (PPP) has almost tripled from $170 billion in 2000 to $451 billion in 2012, though estimates of the size of the informal sector (which is not included in official figures) put the actual numbers closer to $630 billion. The survey was conducted over a twelve-month period (June 2013 - May 2014). In support of the statistical data on the size of informal economy in 110 developing, transition and OECD countries in the world, Nigeria is listed as occupying the 8th position with 57.9% informal sector population, Cameroon listed as number 58 with 32.8%, while South Africa is listed as number 66 with 28.4% informal sector It is comparable in size to Venezuela, and is about twice the size of the U.S. state of California. Prior to the 1970s in Nigeria, the informal sector was not considered as a separate sector. The Informal Sector in Nigeria: From Neglect to Recognition. The majority of informal economy workers are women. Oduh et al (2008) used the general MIMIC model to estimate the size and determinants of the informal sector in Nigeria over the period 1970 to 2005. They range from a low of 20 to 25 per cent of GDP in Mauritius, South Africa, and Namibia, to a high … If the government is able to set up policies to aid in the economic activities of the sector, the informal sector would be able to grow faster. So governments find it difficult bringing taxpayers to the tax net. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. They range from the political through the social to the economic. informal sector economic processes and activities in Nigeria, current knowledge of the size, causes, and consequences of the informal sector remain very scanty and inadequate (CBN/FOS/NISER, 2001; Oduh, Eboh, Ichoku & Ujah, 2008). the informal sector in Nigeria and the impact the choice of definition has on the size of the sector. Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. Sub-Saharan Africa, Please address any questions about this title to publications@imf.org. The section also tries to evaluate the quantity, quality, and foci of available To date, only two studies – Ogbuabor & Malaolu (2013) and Oduah (2008), have attempted to estimate the size of the informal economy in Nigeria using the MIMIC approach. However, it does appear that the SME sector in Nigeria has not come into that glorious position where we can say, unequivocally, that it has become the engine of growth of our economy. How to bring the informal sector into the tax net is a headache to African tax administrators. The informal sector in Nigeria covers a wide range of activities. And this has made it difficult to understand how monetary and fiscal policies transmit to the informal sector and the implication for the overall health of the nation’s economy. International Journal of Economics, Commerce, and management, VIII(7), 204-227. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria. Hassan and Schneider (2016a) noted that the informal economy promotes: resource distortion; underutilisation; and bias in official data like the unemployment rate and GDP statistics. The IMFblog chat entitled: The Potential for Growth and Africa’s informal Economy, indicates that by 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined with pressure on governments to provide jobs for them, adding that the size of Nigeria’s informal economy stands at 65 percent of GDP. All rights reserved. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria. countries to over 50% in the low-income countries. Nigeria’s informal sector is a sleeping giant. Workers in the informal sector earn less income, have unstable income, and do not have access to basic protections and services (3). ... size of informal se ctor. Informal sector activity in Nigeria now 65%—IMF . This puts Nigeria in a class of its own as the United Nations assessments … Moreover, Nigeria is faced with continued severe economic and social crises; many poor households in Nigeria can no longer afford the basic necessities of life for their members not to talk more of a health care insurance plan that is largely seen among informal sector practitioners as luxury and waste of money. The smaller the size of the informal sector the richer the economy. So governments find it difficult bringing taxpayers to the tax net. Formal Sector 15 9. In 1995, employment in sub-Saharan informal sector … The volume of this sub-component of the informal economy can be now estimated in terms of jobs: the question is then to know what value added can be imputed to these jobs. approach (survey method) to estimate the size of the Nigerian informal sector. The multiple indicator-multiple cause (MIMIC) method is a well-established tool for measuring informal economic activity. 4. The unavailability of official statistics on the size of the informal sector in Nigeria has continued to serve as a limiting factor to several research efforts in the informal sector. The IMF Press Center is a password-protected site for working journalists. The informal sector is an integral part of several sub-Saharan African (SSA) countries and plays a key role in the economic growth of these countries. Shadow economy Furthermore, the contribution of informal sector to GDP does not take into account informal employment outside the informal sector, which is scattered all over the various institutional sectors. Aug 9, 2017 Business News Report. “In 2012/13, the monthly average earnings among informal economy workers was GHc101.01 or 27.9 percent lower than the national average earnings of GHc463.30,” the findings said. The Local Money Lenders 11 7. Section three takes a telescopic look at informal sector research in Nigeria from its ap-parent origin in 1975 to the present day. Mr Muhammad Nami, the Chairman, Federal Inland Revenue Service (FIRS) says bringing the informal sector to the tax net will tackle budget deficit and increase revenue in the country and Africa. Nguyen (2019) showed that an informal economy size of 17.6 to 36.7 percent of the Gross Domestic Product (GDP) implies an average of 3.5 to 9.8 percent tax revenue loss. You are at Home Economy Informal sector activity in Nigeria now 65%—IMF. The informal sector is generally regarded as the part of a nation’s economy that is not taxed nor regulated by government. This study aims to innovatively estimate the size of the informal economy of Nigeria using the MIMIC Model and the amount of tax revenue the government loses yearly to the growth in the informal economy. Informal Sector in Nigeria through the lens of Apprenticeship, Education and Unemployment. This work was motivated mainly by the need to empirically examine the magnitude of economic loss attributed to informality in Nigeria. In October 2015, the Federal Ministry of Labour and Productivity reported that the informal sector in Nigeria contributes about 60 percent of the country’s Gross Domestic Product (GDP) and employs about 90 percent of the nation’s workforce. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. Aside from making economic policies ineffective by reducing the credibility of the size of the formal economy (which serves as the basis of judging every economy), it creates several tax revenue losses, deepens the labour force unproductivity, and acts as a hindrance to a nation’s international competitiveness. There has been a lot of focus on the fact that Nigeria’s tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. The study looks at the population 15–65 years of age, using the National Living Standard Survey (NLSS) 2003 informal sector: size estimation, defini-tion, segmentation (activity, age and gender), and spatial location. There has been a lot of focus on the fact that Nigeria's tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. International Monetary Fund IMF has said that informal activities in Nigeria account for about 65 per cent. Over the past years, scholars have debated on whether the informal sector should really be seen as a marginalized sector, which mops up excess or entrenched workers or as a vibrant, entrepreneurial part of the Nigeria economy which can National accounts There are no proper registration and identification of small businesses even medium scale business. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. Also, (11), the size of the informal economy as a percentage of gross national income ranges from under 30 percent in South Africa to about 60 percent in Nigeria, Tanzania and Zimbabwe. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. Central Bank of Nigeria 15 10. This is an article written by Tonuchi et al (2020). The federal government and other stakeholders must roll out measures to provide temporary support to the informal sector. The results show that since 1970, the size of the informal economy has hovered between 53.6 – 77.2% of GDP, and that the average size of the informal economy was about 64.6% of GDP. They range from a low of 20 to 25 percent of GDP in Mauritius, South Africa, and Namibia, to a high of 50 to 65 percent in Tanzania and Nigeria. Accordingly, regulation burden, unemployment, and institutional deficiency are the major drivers of informal economy in Nigeria. The size of the informal economy of Nigeria as at 2018 is 67% of the GDP. Policies and developments affecting the informal economy consequently have a distinctly gendered effect. The purpose of this research is to estimate the size and development of the Nigerian informal economy using the MIMIC Model approach as well as the amount of tax revenue government losses every year due to the growth of the informal economy. the informal sector in Nigeria and the impact the choice of definition has on the size of the sector. The size and role of the informal sector in an economy increases during economic downturns and periods of economic adjustment and transition. The procedure for estimation of informal cross border merchandise trade transactions for Nigeria is based on this study. Distinguin, Rugemintwari, and Tacneng (2016) showed that it is almost impossible for an economy to achieve long term growth if the bulk of its economic activities are performed outside the regulatory purview (monetary and fiscal policies) and taxation regime. Between 1990 and 1994, Africa’s urban employment was put at ten (10) percent but employment in the sub-Saharan informal sector was 6.7 percent. And also, the informal sector contributed immensely to the economic growth through the rebased GDP of Nigeria. The informal economy by contrast has grown faster in size at an annual average rate of about 8.5% between 2015 and 2017.2 Growing Nigeria’s informal economy would require skills development, cheaper credit accessibility and improved power supply. Life offer us much stress, let take away this very stress from you. Although some literature has attempted to estimate the size of the informal economy in Nigeria, there remain considerable controversies to date as regards the methodologies, approaches, and definition of informality. A report from World Bank estimates the average size of the informal economy, as a percentage of official GNI in the year 2000, in developing countries as 41%, in transition countries 38% and in OECD countries 18%. Federation of Informal Workers’ Organization of Nigeria (FIWON) has said the COVID-19 pandemic has further exposed the vulnerability of workers in the informal sector to many health risks. The size of the informal labour market varies from the estimated 4-6% in the high income countries to over 50% in the low income countries. Nigeria Security and Exchange Commission (SEC) 19 12. Andrew W Jonelis © 2020 International Monetary Fund. It involved the actual recording of all goods going out/coming into Nigeria from the neighboring countries for one week in each month. African taxmen are in Nigeria strategizing on taxation of informal sector. The rest of this paper is divided into four sections; section 2 provides theoretical clarification and discussion of the concept. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. The study is based on household survey data. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. The informal economy by contrast has grown faster in size at an annual average rate of about 8.5% between 2015 and 2017.2 Growing Nigeria’s informal economy would require skills development, cheaper credit accessibility and improved power supply. Levenson and Maloney (1998) provide an interpretation of the emergence of an informal sector, in particular to the size choice of informal. The informal sector is a large part of employment in African cities. The study concludes that regulation burden, unemployment, and institutions are the key drivers of informality in Nigeria. Section 5 concludes the paper and proffers policy implication. It says the informal sector contributed between 25% and 65% of GDP with Mauritius and South Africa at the low-end under 25% and Tanzania (over 50%) and Nigeria (over 60%) at the other end. African taxmen are in Nigeria strategizing on taxation of informal sector. IMF Members' Quotas and Voting Power, and Board of Governors, IMF Regional Office for Asia and the Pacific, IMF Capacity Development Office in Thailand (CDOT), IMF Regional Office in Central America, Panama, and the Dominican Republic, Financial Sector Assessment Program (FSAP), Currency Composition of Official Foreign Exchange Reserves. ; It also uses the Predictive Mean Matching (PMM) method to estimate the size of the informal economy for Sub-Saharan African countries over 24 years. Section 3 discusses the MIMIC Model estimation procedure and justification for the variables included, while section 4 discusses the result of the findings. With a pervasive informal sector, city governments have been struggling with how best to respond. The IMFblog chat entitled: The Potential for Growth and Africa’s informal Economy, indicates that by 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined with pressure on governments to provide jobs for them, adding that the size of Nigeria’s informal economy stands at 65 percent of GDP. Mehmet Cangul, Free Download. However, it has been criticized because GDP is used both as a cause and indicator variable. Nigeria’s informal sector is also the employer of the largest number of citizens. The size and role of the informal sector in the economy increase during economic recessions and periods of economic adjustment and transition (2). The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. The poor performance of Nigeria and other African countries in the global supply chain calls for more attention to be paid to the competitiveness and productivity of the informal sector to increase the nation’s export at the international level in particular, and the region’s export in general. Specifically, the size of the informal economy in Nigeria ranges between 47 and 67 percent from 1970 to 2018, and averages 56 percent of the GDP over the same period; and that the nation, on average, losses 56 percent of her potential tax revenue yearly to informality, with the estimated tax revenue loss being around ₦3.5 trillion in 2018. The structure of Nigeria’s informal economy We use cookies to ensure that we give you the best experience on our website. Informal Trade and the Price of Import Bans: Evidence from Nigeria Sami Bensassi Joachim Jarreau Cristina Mitaritonna AGRODEP Working Papers contain preliminary material and research results. And every researcher tends to adopt different methods and approaches based on perceived peculiarities to an economy under investigation. However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes as much as 64% of Gross Domestic Product (GDP). From 2010 to 2014, sub-Saharan Africa’s informal economy accounted for 38 percent of GDP to the region. However, the study failed to incorporate some critical variables that drive informality in Nigeria, resulting in the estimation of skewed trends for Nigeria. A MIMIC approach. It says the informal sector contributed between 25% and 65% of GDP with Mauritius and South Africa at the low-end under 25% and Tanzania (over 50%) and Nigeria (over 60%) at the other end. This report is confirmation that the nation’s informal sector remain a critical part of the economy thus showing the enormity of … Keywords: migrants, remittances, .informal sector, Nigeria 1. The problem with the high informal sector often experienced by developing countries is that: there is low productivity in the sector; dominated by women, and government policies to improve labour and organisation productivity are often defeated (Garzarelli & Limam, 2019). Though informal sector plays a prominent role in poverty mitigation, employment generation, creation of a stimulating effect on the formal economy, and acting as the ‘last resort’ during periods of economic recession and financial crisis, especially in developing and resource-dependent countries like Nigeria, it poses several economic risk and difficulties in the long term (Nguyem, 2019). However, while the MIMIC model developed by Oduh et al (2008) excluded the real GDP, inflation and interest rate, that of Salisu (2001) excluded both the real GDP and unemployment despite the fact that economic theory had identified unemployment as a major cause of informal activities in Nigeria. Mr Muhammad Nami, the Chairman, Federal Inland Revenue Service (FIRS) says bringing the informal sector to the tax net will tackle budget deficit and increase revenue in the country and Africa. Nigeria’s GDP as at the end of 2015 was about N94.1 trillion out of which N38.7 trillion is from the informal and another N55.3 trillion formal. Courses and trainings. Over the past years, scholars have debated on whether the informal sector should really be seen as a marginalized sector, which mops up excess or entrenched workers or as a vibrant, entrepreneurial part of the Nigeria economy which can stimulate economic … (2020). ROLE OF INFORMAL SECTOR IN EMPLOYMENT GENERATION IN NIGERIA CHAPTER ONE INTRODUCTION 1.1 Background to the study. Nigeria must design and roll out measures to support targeted groups and individuals in this sector. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. How to bring the informal sector into the tax net is a headache to African tax administrators. Measuring informality: a statistical manual on the informal sector and informal employment; Women and men in the informal economy: a statistical picture (3rd edition) This publication provides for the 1st time comparable estimates on the size of the informal economy & a statistical profile of informality in all its diversity at the global and regional levels. major growth in the services sector—including in telecommunications, banking, Nollywood, and the informal economy (which was previously unaccounted for in official statistics). The study is based on household survey data. However, this understanding is too inclusive and vague, and certain activities that could be included by that definition are not considered part of the informal economy. There are no proper registration and identification of small businesses even medium scale business. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria. While the MIMIC approach arguably remains the most favoured among the indirect approaches adopted in literature, these two studies from Nigeria suffer from possible heteroscedasticity resulting from the estimation techniques adopted. This has led me thinking that there must be something or some challenge in need of resolution. THE EFFECT OF FISCAL POLICY ON THE SIZE OF THE INFORMAL SECTOR IN NIGERIA It said Within sub Sahara Africa, there is significant variation in the size of informal economies. ROLE OF INFORMAL SECTOR IN EMPLOYMENT GENERATION IN NIGERIA CHAPTER ONE INTRODUCTION 1.1 Background to the study. Nigeria has the challenge of a large informal sector that is most vulnerable to the effects of the pandemic. The International Labour Organization estimates that more than 66% of total employment in Sub-Saharan African is in the informal sector. Savings Association 13 8. How large is the size of Nigeria’s informal economy? International Monetary Fund IMF has said that informal activities in Nigeria account for about 65 per cent. Use the free Adobe Acrobat Reader to view this PDF file. All these hamper the potential growth and contribution of the sector’s potential in raising incomes for its participants. Introduction The reasons are varied for displacement from one location to another – whether within the same country (domestic migration) or across international borders (international migration). This argument has prompted several countries to put a searchlight on the size and performance of their informal economy. These policies are generally meant to ensure formal sector employees, although the inclusion of informal sector employees in these schemes is likely to be an important feature in less developed countries (LDCs), given the size of the informal sector (Nigeria for an example) (Acharya, 2012). Nigeria is the largest country in Africa, and the largest concentration of black people in the world — with a land area of close to 1 million square kilometers, and a population of well over 125 million. It is a tall order. Composition of the Informal sector 11 6. This study, therefore, seeks to address these two issues and verify the findings of Hassan and Schneider for Nigeria. The informal sector thus, constitutes the final destination of an ever increasing number of job seekers. The size of the informal sector in Nigeria is estimated at about 65% and consists of activities that range from agricultural production to mining and quarrying, small-scale building and construction and machine-shop manufacturing. Anna Okon. NIGERIA: Informal Trade With Neighboring Countries Introduction Several studies have shown that informal cross border trade (ICBT) across custom frontiers is thriving globally, especially in Africa. Within the region, however, there is significant variation in the size of informal economies. These Hassan & Schneider (2016a) made considerable effort to address the issue of heteroscedasticity and institution using panel data from 157 countries. Leandro Medina Sign up to receive free e-mail notices when new series and/or country items are posted on the IMF website. Let help you with your thesis, dissertation, proposal, assignment, and essay writing service. Policymakers and other stakeholders are increasingly developing interest in its development and performance mainly because of its role in poverty alleviation, employment generation, government revenue, workings of the economy, among others (Benjamin, Beegle, Recanatini, & Santini, 2014). The Institute of Directors, Nigeria, has declared that despite the huge size of the informal sector, the sector is not captured in Nigeria’s tax net. The economy of Nigeria is a middle-income, mixed economy and emerging market, with expanding manufacturing, financial, service, communications, technology and entertainment sectors. Both studies also neglect the role of institutions in estimating the size of the informal economy. It said Within sub Sahara Africa, there is significant variation in the size of informal economies. The study also used a survey methodology to obtain data on enterprise-level characteristics, production patterns, investment practices and … A BRIEF PROFILE OF THE NIGERIAN INFORMAL SECTOR Nigeria has the largest informal sector in Africa, a predominance that stems from its massive population of 153,9 million,3 and decades of poor economic performance denoted by a high unemployment rate of 12.9% and soaring poverty incidence of up to 54% (CBN, 2009: xxxvii). Unlike the formal economy, the informal economy has grown faster in size at an annual average rate of about 8.5 percent between 2015 and 2018. The informal economy continues to grow as several efforts are made by researchers to understand its size, nature, causes, and indicators. In 2006, national . Specifically, the objective of the study is to examine the size, development, and causes of the informal sector of the Nigerian economy. Smaller the size and role of informal sector in employment GENERATION in strategizing. 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The informal sector in Nigeria account for about 65 per cent ( 2020 ), Adetoba, O.,! Theoretical clarification and discussion of the concept cookies to ensure that we give you best... Than 66 % of the sector makes it practically difficult to ascertain the actual and. On perceived peculiarities to an economy under investigation it included all income activities! Assume that you are at Home economy informal sector free Download, assignment, and spatial location Nigeria covers wide. 12. countries to put a searchlight on the IMF website international Monetary Fund IMF has said that informal economy Nigeria... To empirically examine the magnitude of economic loss attributed to informality in Nigeria and the impact the choice definition... Raising incomes for its participants part of a nation ’ s informal economy in Africa. Monetary Fund IMF has said that informal economy in Nigeria strategizing on taxation of informal sector in Nigeria from... 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