Toyin Olakanpo discusses the way forward to reap the benefits of the informal economy in Nigeria.
The Gala Sausage Roll is synonymous with life in Nigeria. It can be said that if you have never heard of the Gala Sausage Roll then you have never been to Nigeria. The first Gala Sausage Roll was produced in 1962 by UAC Foods Limited and for almost 60 years now, it has been sold exclusively on the streets by street hawkers or by street vendors in small kiosks. You cannot find the Gala sausage roll in any grocery store – other than perhaps in small convenience stores attached to a few petrol stations.
The point of my reference to the Gala Sausage Roll is not a PR stunt but to illustrate the fact that a major player in the formal economy, UAC Foods, is reliant on the power of the informal economy to market and sell one of its most profitable products. This, you will find is true of other major players in the FMCG sector, eg. Unilever, Proctor and Gamble, Promasidor. They all have unique products that are exclusively sold through the informal economy and will likely not survive without the informal economy. Similarly, before the age of mobile airtime top -up, MTN and other mobile telecommunication companies in West Africa relied solely on the umbrella stands and street hawkers to sell airtime – 90% of their profits.
The informal economy involves economic activities undertaken by organizations, and individuals which are not subject to full government regulations, i.e have not been formally registered as a business concern with the Corporate Affairs Commission or workers who have no employment benefits and get paid without the usual tax deductions and pension contributions. As such, most of the business activities in this sector are usually cash based and outside of the radar of the tax man. Those engaged in the informal economy making a living include your local suya man, the photographer or DJ you hire for your son’s party; the lady who tailored your outfit for your friend’s wedding, your barber, the private taxi driver, your domestic staff and gate man and all the street hawkers you see peddling wares on the streets of Lagos. Nine times out of ten, the university graduate who cannot find a job in the formal sector will end up in the informal sector “hustling.” Did you hear of the young lady who graduated with a first class degree in Oil & Gas Management from a UK university and could not get a job when she returned back to Nigeria? She is now baking cakes for a living.
Indeed, the informal sector is growing jobs at a rate four times that of the formal economy ( c. Nite Bhan 2018) and is offering more job opportunities and income generating opportunities than the formal economy especially for the skilled and the un-educated, yet this economic activity is not captured by any data. It is not captured in computing GDP and is not captured in our employment data either. The irony is that Nigeria’s unemployment rate continues to rise because it is focused on the “job dead” formal economy and ignores the “job rich” informal economy which has been reported by the International Monetary Fund to represent over 60% of the Nigerian economy or just over $240 billion dollars annually.
The International Labour Organisation (ILO) has given guidelines (Recommendation 204) to its member countries to start the process to transition the informal economy into the formal economy. Nigeria is a member country. This transition is being pushed by the ILO’s core objectives to promote the creation of enterprise, provide decent work for all and to ensure that all workers are legally protected by labour laws. Taxation is seen as a key ingredient of formalisation.
I don’t like reading stories about taxing the informal economy. I am not against taxation but how much is the average street vendor making daily that he should be taxed or your local hairdresser? One could argue that the average man making a living in the informal economy is already been taxed through some levy or the other to the council collectors but we know that this “collection” hardly reaches the formal sector. What incentives can the government offer to see that this “collection” ends up in the formal sector? The truth of the matter is that the current tax environment in Nigeria is not suitable for the informal economy. What is needed is a simplified and unified collection scheme similar to the Monotax in Uruguay which was set up to address small contributors in the informal economy – a transparent and fair system; but before we get to issues of taxation and establishing new tax laws, I think registration is the first step. Although some informal operators have associations and co-operative groups to which they are registered with, the structure in place is too subtle to make a national impact. To this end I support a government initiative where those employed in or via the informal economy can be registered and identified and captured as part of the employment and GDP data. This could be spear headed by the Federal Government and implemented state by state. It is a start and a good place to start. It should be a participatory process involving key stakeholders with an understanding that the formal economy cannot exist without the informal economy. It should be a process involving the set up of policies and practices that will support the informal economy including access to finance, public space and public services. It should be a process that recognises that more than 60% of the population are working in the informal sector contributing to the economy as a whole and running a sustainable and inclusive government dictates they must be included and not excluded.
Toyin Olakanpo is a lawyer and international development consultant. She writes from London, UK.