A recent report on the informal economy has disclosed that only 1.3% of Nigerian informal businesses reach a monthly profit exceeding ₦2.5 million.
The Informal Economy Report 2024, compiled by Moniepoint, sheds light on the financial realities of this crucial sector, which contributes significantly to the country’s GDP.
Despite appearances of prosperity based on revenue figures, the report, launched on Friday in Abuja, reveals that the majority of the unregistered businesses, including street vendors, artisans, and service providers, struggle with lower profits.
According to the findings, 72.3% of informal businesses surpass the ₦1 million mark in monthly revenue. However, their actual profit figures are much lower, with most making less than ₦250,000 monthly.
The report highlights the significance of the informal market in Nigeria’s economy, noting that it contributes over half of the country’s GDP.
Retail and General Trade emerge as the leading industry within this sector, accounting for 24% of all informal businesses. Together with Food & Drinks, Fashion and Beauty, and Agriculture, these categories make up over half (58.6%) of all informal businesses in Nigeria.
While a substantial portion of these businesses generates over ₦1 million in monthly revenue, the individual profit margins remain modest. Despite this, the report emphasizes the vital role these businesses play in the national economy, with 90% contributing to the GDP.
A significant part of their income (68.2%) goes towards feeding and family expenses, followed by reinvestment in the business (29.7%). However, only a small fraction of these businesses prioritize reinvestment, with three out of ten businesses focusing on this aspect.
Access to credit remains a significant challenge for informal businesses. While 70.1% have accessed credit, the primary sources are friends and family (70.7%), followed by loan apps/platforms (15.1%) and traditional banks (12.2%).
Contrary to the notion that informal businesses evade taxes, the report shows that nearly 90% of these businesses pay some form of tax, primarily in the form of market levies. Over two-thirds (65.1%) of them pay these levies regularly, underscoring their contribution to the national coffers.
The Informal Economy Report 2024 highlights the dual reality faced by Nigeria’s informal businesses: robust revenue figures that mask the struggle for higher profits, and the critical role these businesses play in the country’s economic landscape.
Meanwhile, the Federal Government has launched a new initiative to establish an operating model and framework for Economic and Financial Inclusion, to transform Nigeria into a $1 trillion economy by 2030.
The project, designed to combat poverty and stimulate sustainable economic growth, was inaugurated on Wednesday.
Vice President Kashim Shettima, speaking at the kick-off meeting for the initiative said: “The idea is to provide access to capital and eradicate poverty through legislative interventions and critical policies.”
