Read 5 things the Government should know about the Informal Economy Survey Report
- Increasing population, high poverty and unemployment levels are the major drivers of the informal economy.
The informal economy has seen consistent growth over the years due to the increasing population,high poverty and unemployment levels. Between July 2012 and June 2014, 1.41million jobs were created by the informal economy. Majority of the respondents engaged in informal businesses who participated in the survey cited unemployment as their major reason for establishing the businesses. The respondents who support the informal economy also cited the same reason for lending their support to the sector.
- Burdensome formalization processes frustrate the formalization of informal businesses.
Viable informal businesses remain stunted in growth because of complicated formalization processes. Many of the business owners averred that the burdensome formalization process is the reason why they did not formalize their businesses. By remaining unregistered, they are barred from access to funds required to their growth. Also, the activities of illegal businesses will continue to flourish as they will continue to hide behind the shadows of legal informal businesses. In other to curb these problems, the government should create policies that make formalization of informal businesses friendly and less cumbersome.
- The informal economy is a major source of revenue that is yet to be harnessed.
Majority of the businesses and participants of the informal economy do not pay taxes or revenues. Many respondents who do not approve of the informal sector are of the opinion that all enterprises should be made to pay taxes and contribute to the economy. By not paying taxes, the government loses huge revenues which ought to come from taxation in the informal sector. Thus, the government finds itself in a situation where it has to stretch the revenues recovered from taxes paid in the formal economy to provide basic amenities for all.
- Lack of formalization of the informal economy will remain a clog in the wheel of the cashless economy.
The CBN’s goal of being one of the 20 strongest economies in the world by 2020 through the introduction of the cashless economy might remain a dream because of the informal economy. Majority of transactions carried out in the informaleconomy are done by cash. This is one of the reasons why Nigeria is still largely acash-based economy. Lack of trust caused by non-registration is the reason why most transactions are cash based. Formalization of informal businesses willdevelop trust to a great extent between the participants and in turn encourage cashless transactions.
- Policies encouraging the growth and proper structuring of the informal sector should be made.
81% of the respondents agreed that the informal economy mitigates the issue of unemployment in the country. Hence, instead of trying to kill off this vibrant part of the economy, the government should look into formulating policies which will encourage its growth. The informal economy is a major participant in the economy and should not be stifled by increased fines for would be offenders in the sector. The informal sector offers numerous benefits to the Nigerian economy; however it needs to be properly structured to be effectively integrated into the economy as a whole.