Report: Unemployment Responsible for Take-off of 51.6% of Informal Businesses

*Says informal sector contributes over half of Nigeria’s GDP

Festus Akanbi in Lagos and Ndubuisi Francis in Abuja

A report has stated that unemployment motivated 51.6 per cent of business owners in Nigeria’s informal sector to start their ventures.
The report also indicated that businesses in the informal economy contribute over half of Nigeria’s gross domestic product (GDP), with the bulk of them (72.3 per cent) hitting revenues of more than N1 million monthly.

The 2024 Informal Economy Report by Moniepoint, which was made available at the weekend, also said that based on data from over two million businesses in Nigeria, 35.9 per cent of individuals started businesses because their formal employment was not providing enough income.
According to the Moneypoint report, only 2.8 per cent of these businesses were started out of passion, and 3.8 per cent were inherited.
The report further revealed that more than half of the informal economy’s population is under 34 years old, with the largest group (43.1 per cent) aged between 25 and 34.

It further explained that this age group is followed by those aged 35-44 years, who represent 28.9 per cent of informal business owners.
It also pointed out that younger individuals aged 18-24 years account for 14.4 per cent of these businesses, highlighting a significant participation of the youth in the informal economy.

The 45-54 years age group comprises 10 per cent of informal business owners, while those aged 55-64 years and 65 years and over constitute smaller proportions of 2.8 per cent and 0.6 per cent, respectively.
Also, women account for only 37.1 per cent of the informal economy population in Nigeria, with men dominating the sector at 69.9 per cent.
The report read in part: “Nigeria is home to approximately 40 million MSMEs, of which almost 90 per cent 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.”
The report further pointed out that the monthly profit distribution of businesses in the informal sector in Nigeria shows that a vast majority of these businesses earn relatively low profits.

It showed that approximately 90 per cent of these businesses make less than N500,000 monthly profit, with only a small fraction earning over N2.5 million.
Specifically, 79.4 per cent of businesses report monthly profits of less than N250,000. This is followed by 10.3 per cent of businesses earning monthly profits between N251,000 and N500,000, indicating a slight increase in profitability for a small portion of businesses.

Further, up the scale, 6.6 per cent of businesses have monthly profits ranging from N501,000 to N1 million. A smaller fraction, 2.3 per cent, report monthly profits between N1.1 million and N2.5 million. Only a very small segment, 1.3 per cent, have monthly profits exceeding N2.5 million.
The report also revealed that eight out of 10 businesses in the informal sector have been operational for less than five years.
It showed that retail and general trade, alongside food and drinks, account for over half of the value of Nigeria’s informal economy, retail and general trade represent 38.4 per cent of the sector, while food and drinks account for 15.2 per cent.