The federal government has been advised to tilt towards an informal driven economy to create more employment and significantly reduce poverty.
Lagos-based Financial Derivatives Company Limited gave the advice in its latest economic bulletin.
The formal sector of the economy, which represents the aggregate output, grew by 0.8 per cent in 2017. It involves economic activities undertaken by individuals and organizations, which are not subject to full government regulations. Such activities include photography, catering, hairdressing, motorcycle services, tailoring, fashion designing, carpentry, painting, etc.
This part of the economy is particularly large in Nigeria, with the International Monetary Fund (IMF) estimating it to constitute about 60 per cent of the entire Nigerian economy.
Therefore, the report stressed the need for a new approach to developing the sector to spur job creation.
Nigeria is now the country with the highest number of extreme poor persons with 87 million Nigerians in abject poverty.
“This is disheartening, but true. The country officially overtook India which has 73 million of its population living in poverty.
“It is noteworthy that India’s poverty numbers appear more benign than Nigeria’s due to its high population. With an estimated population of 1.3 billion, 5.26 per cent of Indians live in extreme poverty. By comparison, 45 per cent of Nigerians live in extreme poverty,” it explained.
It stressed that the poverty situation in Nigeria was unarguably worrisome and demands urgent policies that boost employment and aggregate income.
“Meanwhile, the weak growth in the formal economy suggests that employment in this space will be relatively inadequate to reduce poverty. The sector grew by 0.8 per cent in 2017.
“In fact, employment in Nigeria’s formal sector does not guarantee a break from extreme poverty. The sector currently offers a minimum wage of N18,000 ($50), which translates to an average daily income of $1.67, still below the poverty threshold of $1.9 per day.
“The informal economy by contrast has grown faster in size at an annual average rate of about 8.5 per cent between 2015 and 2017. Growing Nigeria’s informal economy would require skills development, cheaper credit accessibility and improved power supply,” it added.
But, it noted that working in the informal sector remains attractive due to the ease attached to operations as a result of the absence of a bureaucratic regulatory framework, and little or no formal educational requirements.
“At times, even Nigerians with high formal education find employment in the informal economy when well- paid formal sector jobs are unavailable.
“The big size of this economy, the inevitable demand for their goods and services and the ease attached to working therein, could be a strategic consideration for Nigeria to raise employment. “This growth in the informal sector and an increase in employment would imply higher household income and lower poverty in Nigeria.
“Nigerian government policies are typically lopsided in favor of the formal economy. The most notable of the current administration’s policies corroborate this.
“In the quest for economic diversification from oil, the government has given priority to solid minerals and agricultural sectors,” it added.
It stressed the need to consider the development of informal skills amongst Nigeria’s working-age population.
With this, according to the report, the government could create and sponsor well-equipped platforms that bring individuals who intend to learn skills and corresponding experts together.
“In addition to skill acquisition, workers in Nigeria’s informal economy have raised concerns over credit accessibility. New graduates from the would-be government skills development institutions are expected to be faced with the same challenge.
“These workers mostly require funds to acquire tools and equipment that are either fundamental to their operations and/or necessary for them to carry out their activities more easily.
“Addressing power infrastructure challenges demands huge capital requirements and takes a long time to materialise. However, a short-term focus on maximising gas availability would be a good start.
“Maximising gas availability could result in significant benefits, not just for the informal economy, but Nigeria as a whole.
“In the meantime, the government could focus on securing an adequate supply of gas to power stations. This could draw actual power output closer to its potential pending the time the country sees other significant investments that could raise capacity,” it stated.