2024
Informal Economy Report
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.
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01
An Overview of Nigeria’s Informal Economy
More than half of the informal economy population is less than 34 years old.
The largest group, making up 43%, is between 25 and 34. This youthful energy offers a tremendous opportunity for socio-economic transformation through innovation, entrepreneurship, job and wealth creation.
Women 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.
Businesses in the South-west account for 30% of Nigeria’s informal economy.
The South-south and North-central zones have the second and third highest number of businesses in retail and trade, respectively. The South-west has the highest.
Retail & General trade, alongside Food & Drinks account for over half of the value of Nigeria’s informal economy.
Businesses you’d typically find in the Retail & General Trade category include Mom & Pop shops, restaurants, mini marts, and others that sell “daily necessities”.
“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. ”
Mrs Sarah, Business Owner.
02
Nature of businesses in Nigeria’s informal economy.
8 out of 10 businesses have been open for less than 5 years.
Only 18.3%, 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% of businesses were over five years old, indicating the challenge of keeping businesses running for over five years.
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.
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.
03
Unemployment and the informal economy.
51.6% 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% of businesses in the informal economy were started out of passion.
68.2% state feeding and family expenses as 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
04
Credit and the Informal Economy
70.1% of business owners in the informal market reported having borrowed money for their business.
For many of these business owners, these loans help with restocking, expansion, and keeping the business afloat in unfavourable times.
More businesses get credit from family and friends than from traditional banks and loan platforms.
Traditional banks are the least common way that businesses in the informal economy get access to the credit they need.
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05
Tax, savings, and the informal economy
88.7% of businesses in the informal economy say they pay some form of taxes.
Although businesses in the informal economy are often identified by the fact that they do not pay taxes, the reality is that taxation just looks different to them. For them, taxation comes in the form of market levies, which most of them pay. Most of these businesses say they have paid some sort of market levies in their business’ lifetime.
92.4% of businesses in the informal market save money
For these business owners, these savings are tied to regular responsibilities that can’t be met with immediate cash flow.
Most of these businesses save their money with a cooperative. Only 1 in 10 of these businesses say they save with a traditional bank.
Cooperative and group contributions form the bulk of how these businesses choose to save. For many of them, this feels “closer to home” than other means.
06
Digital payments and the informal economy
1 in 2 businesses in Nigeria’s informal economy say they prefer to receive cash payments.
Digital payments accounted for 46.2%, split between card payments and transfers. The preference for cash was connected to safety and ease of doing business. Where they likely needed to use cash to pay for the goods and services they sold, cash was their preferred means of receiving payments.
Only 15.2% of these businesses listed cash as exclusively as their customer’s preferred means of payment.
Despite their preference for cash, digital payment methods like cards and transfers still accounted for the bulk of how they were paid.
“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.”
Tosin Eniolorunda, CEO, Moniepoint.
07
How Moniepoint is making inroads into the informal economy
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