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. This study, therefore, seeks to address these two issues and verify the findings of Hassan and Schneider for Nigeria. They range from a low of 20 to 25 percent of GDP in Mauritius, South Africa, and Namibia, to a high of 50 to 65 percent in Tanzania and Nigeria. The rest of this paper is divided into four sections; section 2 provides theoretical clarification and discussion of the concept. Introduction The reasons are varied for displacement from one location to another – whether within the same country (domestic migration) or across international borders (international migration). There are no proper registration and identification of small businesses even medium scale business. Though informal sector plays a prominent role in poverty mitigation, employment generation, creation of a stimulating effect on the formal economy, and acting as the ‘last resort’ during periods of economic recession and financial crisis, especially in developing and resource-dependent countries like Nigeria, it poses several economic risk and difficulties in the long term (Nguyem, 2019). A MIMIC approach. 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. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. (2020). Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. Aside from making economic policies ineffective by reducing the credibility of the size of the formal economy (which serves as the basis of judging every economy), it creates several tax revenue losses, deepens the labour force unproductivity, and acts as a hindrance to a nation’s international competitiveness. They range from a low of 20 to 25 per cent of GDP in Mauritius, South Africa, and Namibia, to a high … The federal government and other stakeholders must roll out measures to provide temporary support to the informal sector. The smaller the size of the informal sector the richer the economy. It is a tall order. 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. 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. © 2020 International Monetary Fund. However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes … The IMF Press Center is a password-protected site for working journalists. Andrew W Jonelis The study also used a survey methodology to obtain data on enterprise-level characteristics, production patterns, investment practices and … Hassan & Schneider (2016a) made considerable effort to address the issue of heteroscedasticity and institution using panel data from 157 countries. 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). 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. 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, the study failed to incorporate some critical variables that drive informality in Nigeria, resulting in the estimation of skewed trends for Nigeria. International Monetary Fund IMF has said that informal activities in Nigeria account for about 65 per cent. The Informal Sector in Nigeria: From Neglect to Recognition. 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. THE EFFECT OF FISCAL POLICY ON THE SIZE OF THE INFORMAL SECTOR IN NIGERIA The Informal Sector in Nigeria: From Neglect to Recognition. 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. 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. This puts Nigeria in a class of its own as the United Nations assessments … Central Bank of Nigeria 15 10. With a pervasive informal sector, city governments have been struggling with how best to respond. Informal Sector in Nigeria through the lens of Apprenticeship, Education and Unemployment. It is comparable in size to Venezuela, and is about twice the size of the U.S. state of California. 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. 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). Use the free Adobe Acrobat Reader to view this PDF file. Keywords: migrants, remittances, .informal sector, Nigeria 1. 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. informal sector: size estimation, defini-tion, segmentation (activity, age and gender), and spatial location. If the government is able to set up policies to aid in the economic activities of the sector, the informal sector would be able to grow faster. 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 study looks at the population 15–65 years of age, using the National Living Standard Survey (NLSS) 2003 Cite as; Tonuchi, E. J., Idowu, P., Adetoba, O. O., & Mimiko, D. O. The section also tries to evaluate the quantity, quality, and foci of available Sign up to receive free e-mail notices when new series and/or country items are posted on the IMF website. Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. major growth in the services sector—including in telecommunications, banking, Nollywood, and the informal economy (which was previously unaccounted for in official statistics). Section 5 concludes the paper and proffers policy implication. 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. This is an article written by Tonuchi et al (2020). The federal government and other stakeholders must roll out measures to provide temporary support to the informal sector. Furthermore, the contribution of informal sector to GDP does not take into account informal employment outside the informal sector, which is scattered all over the various institutional sectors. 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. 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). 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. 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. 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. Policies and developments affecting the informal economy consequently have a distinctly gendered effect. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. This has led me thinking that there must be something or some challenge in need of resolution. Section 3 discusses the MIMIC Model estimation procedure and justification for the variables included, while section 4 discusses the result of the findings. National accounts All these hamper the potential growth and contribution of the sector’s potential in raising incomes for its participants. 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 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. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. In 1995, employment in sub-Saharan informal sector … The informal sector was historically recognized as an opposition to formal economy, meaning it included all income earning activities beyond legally regulated enterprises. Nigeria Deposit Insurance Corporation (NDIC) 17 11. The structure of Nigeria’s informal economy Specifically, the objective of the study is to examine the size, development, and causes of the informal sector of the Nigerian economy. Section three takes a telescopic look at informal sector research in Nigeria from its ap-parent origin in 1975 to the present day. Its borders span 4,047 kilometres (2,515 mi), and it shares borders with Benin (773 km or 480 mi), Niger (1,497 km or 930 mi), Chad (87 km or 54 mi), and Cameroon (including the separatist Ambazonia) 1,690 km or 1,050 mi. ROLE OF INFORMAL SECTOR IN EMPLOYMENT GENERATION IN NIGERIA CHAPTER ONE INTRODUCTION 1.1 Background to the study. It said Within sub Sahara Africa, there is significant variation in the size of informal economies. All rights reserved. This argument has prompted several countries to put a searchlight on the size and performance of their informal economy. • Services industries that contributed large shares of Nigerian GDP in 2014 include wholesale and retail trade (17.6%), real estate (8.4%), and telecommunications and information services (8.3%) (figure 1) . The informal economy by contrast has grown faster in size at an annual average rate of about 8.5% between 2015 and 2017.2 Growing Nigeria’s informal economy would require skills development, cheaper credit accessibility and improved power supply. Shadow economy Informal sector activities are normally characterized by small size of activities, few workers (often less than six) and working in make shift structures. the informal sector in Nigeria and the impact the choice of definition has on the size of the sector. Informal sector activity in Nigeria now 65%—IMF . The volume of this sub-component of the informal economy can be now estimated in terms of jobs: the question is then to know what value added can be imputed to these jobs. ; Courses and trainings. 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. This report is confirmation that the nation’s informal sector remain a critical part of the economy thus showing the enormity of … The informal sector is a large part of employment in African cities. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. 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. It involved the actual recording of all goods going out/coming into Nigeria from the neighboring countries for one week in each month. Formal Sector 15 9. Nigeria’s informal sector is a sleeping giant. Both studies also neglect the role of institutions in estimating the size of the informal economy. 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. Nigeria’s GDP as at the end of 2015 was about N94.1 trillion out of which N38.7 trillion is from the informal and another N55.3 trillion formal. Leandro Medina The size of the informal labour market varies from the estimated 4-6% in the high income countries to over 50% in the low income countries. Mehmet Cangul, Free Download. A BRIEF PROFILE OF THE NIGERIAN INFORMAL SECTOR Nigeria has the largest informal sector in Africa, a predominance that stems from its massive population of 153,9 million,3 and decades of poor economic performance denoted by a high unemployment rate of 12.9% and soaring poverty incidence of up to 54% (CBN, 2009: xxxvii). So governments find it difficult bringing taxpayers to the tax net. 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%. 4. The majority of informal economy workers are women. 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