Nigeria Security and Exchange Commission (SEC) 19 12. In 2006, national . In October 2015, the Federal Ministry of Labour and Productivity reported that the informal sector in Nigeria contributes about 60 percent of the country’s Gross Domestic Product (GDP) and employs about 90 percent of the nation’s workforce. The International Labour Organization estimates that more than 66% of total employment in Sub-Saharan African is in the informal sector. the informal sector in Nigeria and the impact the choice of definition has on the size of the sector. ; With a pervasive informal sector, city governments have been struggling with how best to respond. Accordingly, regulation burden, unemployment, and institutional deficiency are the major drivers of informal economy in Nigeria. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. (2020). Econometric models Nguyen (2019) showed that an informal economy size of 17.6 to 36.7 percent of the Gross Domestic Product (GDP) implies an average of 3.5 to 9.8 percent tax revenue loss. The study is based on household survey data. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. From 2010 to 2014, sub-Saharan Africa’s informal economy accounted for 38 percent of GDP to the region. African taxmen are in Nigeria strategizing on taxation of informal sector. The Institute of Directors, Nigeria, has declared that despite the huge size of the informal sector, the sector is not captured in Nigeria’s tax net. Informal Trade and the Price of Import Bans: Evidence from Nigeria Sami Bensassi Joachim Jarreau Cristina Mitaritonna AGRODEP Working Papers contain preliminary material and research results. This study aims to innovatively estimate the size of the informal economy of Nigeria using the MIMIC Model and the amount of tax revenue the government loses yearly to the growth in the informal economy. ; However, this understanding is too inclusive and vague, and certain activities that could be included by that definition are not considered part of the informal economy. This puts Nigeria in a class of its own as the United Nations assessments … Section 3 discusses the MIMIC Model estimation procedure and justification for the variables included, while section 4 discusses the result of the findings. The size and role of the informal sector in an economy increases during economic downturns and periods of economic adjustment and transition. There has been a lot of focus on the fact that Nigeria's tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. Unlike the formal economy, the informal economy has grown faster in size at an annual average rate of about 8.5 percent between 2015 and 2018. The poor performance of Nigeria and other African countries in the global supply chain calls for more attention to be paid to the competitiveness and productivity of the informal sector to increase the nation’s export at the international level in particular, and the region’s export in general. The International Labour Organisation (ILO) estimates that the average size of the informal economy as a percentage of gross national income (GNI) in sub-Saharan Africa (SSA) is 42.3%. Nigeria is the largest country in Africa, and the largest concentration of black people in the world with a land area of close to 1 million square kilometers, and a population of well over 125 million. © 2020 International Monetary Fund. Between 1990 and 1994, Africa’s urban employment was put at ten (10) percent but employment in the sub-Saharan informal sector was 6.7 percent. Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The multiple indicator-multiple cause (MIMIC) method is a well-established tool for measuring informal economic activity. The problem with the high informal sector often experienced by developing countries is that: there is low productivity in the sector; dominated by women, and government policies to improve labour and organisation productivity are often defeated (Garzarelli & Limam, 2019). The IMFblog chat entitled: The Potential for Growth and Africa’s informal Economy, indicates that by 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined with pressure on governments to provide jobs for them, adding that the size of Nigeria’s informal economy stands at 65 percent of GDP. Aug 9, 2017 Business News Report. Let help you with your thesis, dissertation, proposal, assignment, and essay writing service. informal sector economic processes and activities in Nigeria, current knowledge of the size, causes, and consequences of the informal sector remain very scanty and inadequate (CBN/FOS/NISER, 2001; Oduh, Eboh, Ichoku & Ujah, 2008). ROLE OF INFORMAL SECTOR IN EMPLOYMENT GENERATION IN NIGERIA CHAPTER ONE INTRODUCTION 1.1 Background to the study. Section three takes a telescopic look at informal sector research in Nigeria from its ap-parent origin in 1975 to the present day. The informal sector thus, constitutes the final destination of an ever increasing number of job seekers. Use the free Adobe Acrobat Reader to view this PDF file. They range from a low of 20 to 25 per cent of GDP in Mauritius, South Africa, and Namibia, to a high … ... size of informal se ctor. ROLE OF INFORMAL SECTOR IN EMPLOYMENT GENERATION IN NIGERIA CHAPTER ONE INTRODUCTION 1.1 Background to the study. These policies are generally meant to ensure formal sector employees, although the inclusion of informal sector employees in these schemes is likely to be an important feature in less developed countries (LDCs), given the size of the informal sector (Nigeria for an example) (Acharya, 2012). The informal sector was historically recognized as an opposition to formal economy, meaning it included all income earning activities beyond legally regulated enterprises. Specifically, the objective of the study is to examine the size, development, and causes of the informal sector of the Nigerian economy. The federal government and other stakeholders must roll out measures to provide temporary support to the informal sector. The informal sector is an integral part of several sub-Saharan African (SSA) countries and plays a key role in the economic growth of these countries. The purpose of this research is to estimate the size and development of the Nigerian informal economy using the MIMIC Model approach as well as the amount of tax revenue government losses every year due to the growth of the informal economy. The informal sector is generally regarded as the part of a nation’s economy that is not taxed nor regulated by government. Moreover, Nigeria is faced with continued severe economic and social crises; many poor households in Nigeria can no longer afford the basic necessities of life for their members not to talk more of a health care insurance plan that is largely seen among informal sector practitioners as luxury and waste of money. It involved the actual recording of all goods going out/coming into Nigeria from the neighboring countries for one week in each month. Policymakers and other stakeholders are increasingly developing interest in its development and performance mainly because of its role in poverty alleviation, employment generation, government revenue, workings of the economy, among others (Benjamin, Beegle, Recanatini, & Santini, 2014). Keywords: migrants, remittances, .informal sector, Nigeria 1. Mr Muhammad Nami, the Chairman, Federal Inland Revenue Service (FIRS) says bringing the informal sector to the tax net will tackle budget deficit and increase revenue in the country and Africa. Levenson and Maloney (1998) provide an interpretation of the emergence of an informal sector, in particular to the size choice of informal. The size of the informal sector in Nigeria is estimated at about 65% and consists of activities that range from agricultural production to mining and quarrying, small-scale building and construction and machine-shop manufacturing. Informal sector It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. The IMF Press Center is a password-protected site for working journalists. Workers in the informal sector earn less income, have unstable income, and do not have access to basic protections and services (3). Findings from the MIMIC model revealed that: the size of the informal economy in Nigeria ranges between 47 and 67 percent from 1970 to 2018, and averages 56 percent of the GDP over the same period; and that the nation, on average, losses 56 percent of her potential tax revenue yearly to informality, with the estimated tax revenue loss being around ₦3.5 trillion in 2018. Nigerian GDP at purchasing power parity (PPP) has almost tripled from $170 billion in 2000 to $451 billion in 2012, though estimates of the size of the informal sector (which is not included in official figures) put the actual numbers closer to $630 billion. the informal sector in Nigeria and the impact the choice of definition has on the size of the sector. The federal government and other stakeholders must roll out measures to provide temporary support to the informal sector. Distinguin, Rugemintwari, and Tacneng (2016) showed that it is almost impossible for an economy to achieve long term growth if the bulk of its economic activities are performed outside the regulatory purview (monetary and fiscal policies) and taxation regime. To address this issue, this paper applies for the first time the light intensity approach (instead of GDP). The survey was conducted over a twelve-month period (June 2013 - May 2014). International Monetary Fund IMF has said that informal activities in Nigeria account for about 65 per cent. In support of the statistical data on the size of informal economy in 110 developing, transition and OECD countries in the world, Nigeria is listed as occupying the 8th position with 57.9% informal sector population, Cameroon listed as number 58 with 32.8%, while South Africa is listed as number 66 with 28.4% informal sector approach (survey method) to estimate the size of the Nigerian informal sector. informal sector: size estimation, defini-tion, segmentation (activity, age and gender), and spatial location. Several criteria have been used to define the informal sector, such as size, ease of entry, legal status, ownership and management, and technology (Cole and Fayissa, 1991). The structure of Nigeria’s informal economy This study, therefore, seeks to address these two issues and verify the findings of Hassan and Schneider for Nigeria. The informal economy continues to grow as several efforts are made by researchers to understand its size, nature, causes, and indicators. In India, Nigeria and Brazil, the number of workers in the informal economy affected by the lockdown and other containment measures is substantial," the ILO report released in Geneva said. Informal Sector in Nigeria through the lens of Apprenticeship, Education and Unemployment. The study also used a survey methodology to obtain data on enterprise-level characteristics, production patterns, investment practices and … According to Magbagbeola (1996), the informal sector in Nigeria refers to economic activities in all sectors of the economy that are operated outside the purview of government regulation. Sign up to receive free e-mail notices when new series and/or country items are posted on the IMF website. Although some literature has attempted to estimate the size of the informal economy in Nigeria, there remain considerable controversies to date as regards the methodologies, approaches, and definition of informality. It also uses the Predictive Mean Matching (PMM) method to estimate the size of the informal economy for Sub-Saharan African countries over 24 years. All rights reserved. Central Bank of Nigeria 15 10. Andrew W Jonelis It said Within sub Sahara Africa, there is significant variation in the size of informal economies. All these hamper the potential growth and contribution of the sector’s potential in raising incomes for its participants. Section 5 concludes the paper and proffers policy implication. However, while the MIMIC model developed by Oduh et al (2008) excluded the real GDP, inflation and interest rate, that of Salisu (2001) excluded both the real GDP and unemployment despite the fact that economic theory had identified unemployment as a major cause of informal activities in Nigeria. If you continue to use this site we will assume that you are happy with it. So governments find it difficult bringing taxpayers to the tax net. There are no proper registration and identification of small businesses even medium scale business. Anna Okon. The size and role of the informal sector in the economy increase during economic recessions and periods of economic adjustment and transition (2). The informal sector is a large part of employment in African cities. Informal sector activities are normally characterized by small size of activities, few workers (often less than six) and working in make shift structures. major growth in the services sector—including in telecommunications, banking, Nollywood, and the informal economy (which was previously unaccounted for in official statistics). A report from World Bank estimates the average size of the informal economy, as a percentage of official GNI in the year 2000, in developing countries as 41%, in transition countries 38% and in OECD countries 18%. Nigeria Deposit Insurance Corporation (NDIC) 17 11. They state that small firms do not scale down to avoid paying taxes, but their limited investment needs and the narrow nature of their operations make stable property rights unimportant and the gains from civic participation flimsy. However, the study failed to incorporate some critical variables that drive informality in Nigeria, resulting in the estimation of skewed trends for Nigeria. The study concludes that regulation burden, unemployment, and institutions are the key drivers of informality in Nigeria. They range from the political through the social to the economic. It is a tall order. Over the past years, scholars have debated on whether the informal sector should really be seen as a marginalized sector, which mops up excess or entrenched workers or as a vibrant, entrepreneurial part of the Nigeria economy which can stimulate economic … However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes as much as 64% of Gross Domestic Product (GDP). To date, only two studies – Ogbuabor & Malaolu (2013) and Oduah (2008), have attempted to estimate the size of the informal economy in Nigeria using the MIMIC approach. “In 2012/13, the monthly average earnings among informal economy workers was GHc101.01 or 27.9 percent lower than the national average earnings of GHc463.30,” the findings said. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. International Journal of Economics, Commerce, and management, VIII(7), 204-227. Prior to the 1970s in Nigeria, the informal sector was not considered as a separate sector. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. Formal Sector 15 9. It says the informal sector contributed between 25% and 65% of GDP with Mauritius and South Africa at the low-end under 25% and Tanzania (over 50%) and Nigeria (over 60%) at the other end. However, it does appear that the SME sector in Nigeria has not come into that glorious position where we can say, unequivocally, that it has become the engine of growth of our economy. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. It says the informal sector contributed between 25% and 65% of GDP with Mauritius and South Africa at the low-end under 25% and Tanzania (over 50%) and Nigeria (over 60%) at the other end. So governments find it difficult bringing taxpayers to the tax net. This argument has prompted several countries to put a searchlight on the size and performance of their informal economy. Also, (11), the size of the informal economy as a percentage of gross national income ranges from under 30 percent in South Africa to about 60 percent in Nigeria, Tanzania and Zimbabwe. And also, the informal sector contributed immensely to the economic growth through the rebased GDP of Nigeria. The IMFblog chat entitled: The Potential for Growth and Africa’s informal Economy, indicates that by 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined with pressure on governments to provide jobs for them, adding that the size of Nigeria’s informal economy stands at 65 percent of GDP. The informal sector in Nigeria covers a wide range of activities. The size of the informal economy of Nigeria as at 2018 is 67% of the GDP. IMF Members' Quotas and Voting Power, and Board of Governors, IMF Regional Office for Asia and the Pacific, IMF Capacity Development Office in Thailand (CDOT), IMF Regional Office in Central America, Panama, and the Dominican Republic, Financial Sector Assessment Program (FSAP), Currency Composition of Official Foreign Exchange Reserves. 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size of informal sector in nigeria

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