Making Case for Improved Structures within Nigeria’s Informal Sector

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With the havoc caused by COVID-19 pandemic and its attendant consequences on the economy, some experts have harped on the urgent need for improved structures within Nigeria’s informal sector given that they bear the brunt of the economic loss, Chiemelie Ezeobi reports

Nigeria’s informal sector makes up about 65 per cent of the entire economy and this makes them the backbone of the economy. But since COVID-19 pandemic struck a year ago, this same sector has borne the brunt of the economic impact of the pandemic.

Coming almost at the heels of the 2018 World Bank report that tagged Nigeria as the poverty capital of the world, the COVID-19 pandemic gravely exacerbated the critical issue. Although the pandemic affected global economies and different sectors too, the worst hit was the informal sector.

Its negative ripple effect on the informal sector made up of individuals, micro and small enterprises, daily wage earners, street traders and vendors, repair and service provision, and other online or home-based enterprises, further made them vulnerable as their income generating activities are more closely tied to the daily whims and caprices of the market.

The truth remains that Nigeria’s informal sector like most others around the world are very strong pillars of the world’s economy and increasingly, more must be done to see that the work they do and the impact they make – in terms of job creation and income contribution is more sustainable and not easily eroded by pandemics or other social challenges.

Phenomenal Loss

Thus as the world slowly recovers from the pandemic even as several countries are implementing a phased approach to administer vaccines it is important not to lose sight of an equally fatal phenomenon affecting our informal sector. One which has been described by many as a second pandemic resulting from eroding income levels and struggling economies caused by a year’s worth of inactivity.

In a country like Nigeria where the informal sector makes up about 65 per cent of the entire economy, the resultant effect of COVID-19-curbing activities, including lockdowns, border closures, has started to materialise in the form of an economic recession, widening poverty gaps, increasing inflation and unemployment rate. This gaps were highlighted as the Quarter Four (Q4) 2020 unemployment rate showed that about 23.2 million Nigerians are unemployed, representing a 6.2 per cent increase from the 27.1 per cent recorded in Q2 2020.

Also, February 2021 inflation rate was placed at 21.79 per cent, the highest recorded in over 15 years. These results make it very crucial for the government and private sector players to move quickly and ensure that recovery policies take into consideration the peculiarities of our informal sector players so that they are not left behind and can thrive post-pandemic.

Making Case for Improved Structures within Nigeria’s Informal Sector

Recently, these formed the basis of a conversation between key industry players and the media centred around the theme, “Securing our Informal Economy amidst a Post-COVID Reality’. The parley sought to bring together stakeholders to discuss and share insights on the impacts of COVID-19 on the informal sector and on people at the bottom of the pyramid with a specific focus on what needs to be done in the new phase of reopenings, vaccine procurement and distribution, NIN deadlines and what this could mean for business continuity and financial access in the informal economy.

The conversation was moderated by Policy Lead, Sustainable and Inclusive Digital Financial Services initiative (SIDFS), Prof Olawale Ajai;

and included ED, Bank of Industry (BOI), Ms Toyin Adeniji; former CEO, LAPO Microfinance Bank, Dr Godwin Ehigiamusoe; Chief Impact Officer, Rendra Foundation, Ms Onyeka Akpaida; and CEO, Bankly, Ms Tomilola Adejana.

Concerted Partnerships

Against the backdrop of the economic challenges being experienced by Nigeria’s informal sector, BOI’s Adeniji emphasised the need for continuous concerted efforts and partnerships between the government and private sector players to deepen solutions to reach a wider number of vulnerable groups in our informal sector.

She highlighted some of BOI’s interventions, including – reducing interest rates by at least two per cent and expanding the reach of its services through its technology platform to onboard additional micro-enterprises to benefit from BOI initiatives.

She further mentioned that survival funds, artisan grants are still being disbursed with micro-enterprises receiving payroll support and guaranteed offtake support. Existing initiatives like the Government’s Economic Empowerment Program (GEEP) served as a channel for effective targeting of some of these interventions.

Beyond this, she said the BOI is also working with the World Bank on a national intervention through the state and has become instrumental in providing the data points needed to direct the World Bank’s interventions to where they are most needed across the country.

She also stressed the need to embrace digitisation to drive key solutions as the pandemic revealed in no small way the very important role of technology in creating an inclusive economy.

Digitised Solution

On the private end of the spectrum, Ms Tomi Adejana opined that securing our informal sector, post-COVID-19, lies in leveraging three key themes: digitisation, collaboration and data.

Using the Bankly solution as an example, Adejana described how a study of the savings culture of the informal sector led to the development of a digitised solution that imitated the typical saving mechanism of the informal sector and improving on it by offering an added security against fraud, insurance coverage and access to the formal sector.

The result of this was increased and easily accessible savings that provided a safety net for Bankly users during the peak of the pandemic. The trend was a spike in savings withdrawals, and subsequent return to regular savings by most of their users after lockdown measures were lifted.

She also added that data gathering provided a means to identify the extent of support required by a person or groups, provide useful insights to design customised solutions and determine vital collaborations for more inclusive solutions.

Speaking on a post-COVID and beyond solution, she recommended continuous education within the informal sector on the need to save digitally to enable them to withstand future shocks and avoid loan sharks with predatory interest rates that drive the cycle of poverty, scaling innovations that track the credit history of vulnerable groups to give them access to other incentives like health insurance and credits and deepening financial inclusion among women as a way to reduce domestic violence.

Institutionalising Interventions

Mr. Ehigiamusoe while sharing his views said, the impacts of the pandemic on poor people, mostly drivers of microenterprises, was far worse than the medical impacts because their businesses were already operating on a fragile and slim economic base, adding that many micro-enterprises closed down and amongst those that survived are many still struggling and underperforming.

He also spoke on the need to not just use data for quick fixes or interventions, but to institutionalise programmes that have worked so the informal sector can actually start to build wealth and grow, rather than look to it as a fallback for hard times.

For him, institutionalising these interventions means going beyond business credits and looking into other areas like micro-insurance for healthcare, educational support, both of which require huge expenditure from lean financial resources by households at the bottom of the pyramid.

Furthermore, he recommended private sector-led social interventions that create direct supply linkages and collaborations with micro-enterprises as well as a consideration of the concept of social business as a way to reduce poverty rates and improve economic outcomes.

Impact on Women

Speaking on the impact of the pandemic on women in the informal sector, Akpaida who works directly with women talked about how it has further exacerbated pre-existing gender inequalities and vulnerabilities including gender pay gaps, access to finances, education and resources, adding that many women-owned businesses experienced closures and drops in income levels thereby affecting their ability to support their families, given that five out of 10 women are breadwinners.

With regards to policies, Akpaida believes that the interests and peculiarities of the informal sector are not well represented in policy formulation and existing policies are not well implemented. She says that carrying beneficiaries along, by either working directly with them or partnering organisations who already work with them, is one of the most effective ways the right structures can be built and made to work, as this will help policymakers understand real pain points and how they can solve them.

Instituting Sustainable Solutions

In his closing statement, Prof. Ajai said that in building back better from the pandemic, the nation needs to institute sustainable solutions that will enable the economy most especially the informal sector to withstand future shocks.

He highlighted the need for discussions and solutions around sustainable economic and national development for the informal sector to not only focus on financial inclusion but also on economic inclusion because they present an opportunity to fast track development.

Therefore, he posited that financial and economic inclusion must form an integral part of policy discussions while efforts and investments must be directed at leveraging the latent energy of the informal sector.