The International Labour Organization describes the informal sector as ‘units engaged in the production of goods or services with the primary objective of generating employment and income to the persons concerned.’ In the Nigerian context, the Bank of Industry describes the informal sector as ‘economic activities that are not fully regulated by the government and other public authorities, enterprises that are not officially registered without a complete set of accounts and workers with jobs that lack employment benefits, social or legal protection’.
This sector is characterized by the presence of micro, small and medium businesses that offer basic services or goods across different sectors and locations in the country. In the Nigerian context, micro businesses have between 1 and 9 employees, small businesses have between 10 and 49 employees while medium businesses have between 50 and 249 employees. Some of the basic services are offered by various categories of business owners identified within the informal sector such as petty traders, street hawkers, small-scale sole proprietorships, subsistence farmers as well as small-scale service providers such as hairdressers, carpenters, tailors and taxi drivers, etc.
More than 65% of the Nigerian population are estimated to belong to the informal sector, engaging in some of the economic activities listed above. This is an often overlooked segment of the economy despite its immense contribution to economic indicators like the Gross Domestic Product (GDP). For instance, in 2015, the informal sector accounted for about 42% of the Nigerian GDP. Why then is so little attention paid to building the capacity of the various actors within the informal sector if it’s contribution is significant?
Below, we see a further breakdown of GDP contributions per sector.
The inherent value proposition is clear from the illustration and future projections are even more optimistic. The informal sector is projected to contribute 46.11% of the Nigerian GDP by 2025.
On the flip side, the formal sector which is characterized by regulated incorporations that are registered officially contributed about 59% of the Nigerian GDP in the same 2015 with 35% of the Nigerian population. One could argue that the structured skills acquisition system in the formal sector plays a vital role in this GDP contribution disparity. In the formal sector, skills development begins with primary education, followed by Junior Secondary education andthen Senior Secondary Education. Thereafter, students enter tertiary education and choose a science, commercial, technical or arts pathway at a university, polytechnic or teacher training school.
As of 2020, out of the 2 million students who applied for tertiary education, only 612,557 were admitted. The admission data released by the Joint Admissions and Matriculations Board (JAMB) shows that the nation’s universities admitted a total of 444,947 students; polytechnics and monotechnics, had about 96,423 students; colleges of education had 69,810 students; and innovation enterprise institutions, admitted 1,377 students. The big question to be answered remains: are we putting too much focus on one sector and merely paying attention to the other?
A major difference between the formal and informal sector is the mode of skill acquisition. Labour within the formal sector tend to acquire education and skills through formal systems of education while those in the informal sector mostly have elementary skills acquired on the job. Though the number of institutions within formal education in Nigeria have increased over the years, the poor ability of these institutions to offer quality education and training to the growing Nigerian population has led to the growth of the informal sector as people forcefully adapt and devise alternative means to provide for themselves.
The major means for acquiring skills within the informal sector has been through vocational training and traditional apprenticeship. Traditional apprenticeship consists of hands-on training of apprentices by skilled workers within the businesses, ensuring the transfer of knowledge, business skills and expertise from generation to generation. This informal mode of training has provided avenues for personal sustenance during times of unemployment, as the knowledge gained during apprenticeship is used in employee roles or personal businesses to provide an income for self and family.
A typical example of this is the Igbo apprenticeship system known as Igba boi – a cultural practice where young Igbo boys are sent to businessmen in various cities to learn trades. When the boy has learned from his master, the master sets him up with capital and goods to start his own business
Vocational training on the other hand refers to skill based programmes which are designed for skill acquisition at a lower level of education. This form of training has been incorporated into the educational system through Technical and Vocational Education and Training (TVET). It is described by UNESCO as “a comprehensive term referring to those aspects of the educational process involving, in addition to general education, the study of technologies and related sciences, and the acquisition of practical skills, attitudes, understanding and knowledge relating to occupations in various sectors of economic and social life”. The National Board for Technical Education (NBTE) supervises the TVET system in Nigeria, the structure it takes is to offer training at different levels: lower secondary, upper secondary, post-secondary and tertiary. Courses offered include welding and fabrication, carpentry and joinery, garment making and computer science to mention a few. There is a school of thought that vocational training should be introduced into the curriculum of primary schools but that is a story for another day.
Though vocational training and traditional apprenticeship have been the major modes of skill acquisition and knowledge transfer, the presence of poor regulation and government policies hinders the provision of quality upskilling. Additionally, the short life cycle of businesses and the lack of important datasets for informed decision-making by the government poses a difficulty to the measurement of the impact of the informal sector in Nigeria. The limited access to the key demographics, market size, gender distribution and other critical data points of the informal sector limits targeted interventions to upskill key players within the sector and as such, the private sector and the government may easily downplay the importance of strategic investments.
With the upskilling of labour within the informal sector, it is essential to develop training programmes suited to the needs of the individuals. These programmes have to go hand-in-hand with properly equipped facilities and a robust and locally applicable curriculum to maximise impact, therefore, efficient capacity building programmes should be created to provide enterprises and individuals in the informal sector with the hands-on knowledge to operate in an evolving world. A specific example would be the adaptation of existing apprenticeship models to include an educational curriculum inclusive of digital skills and tailored material to the mode of apprenticeship being done.
The role of capacity building is solely not on the private sector or the government but a collaborative effort to enable the optimum performance of enterprises in the informal sector.
Specific steps that can be taken include:
The COVID-19 pandemic adversely impacted both the formal and informal sector as economic activities were crippled with the requirements of physical distancing and lockdown measures. The formal sector was able to pivot seamlessly and continue business with the use of technology, however, the informal sector was not as quick due to the limited knowledge of technology possessed by the majority of small business owners. Therefore the provision of technology platforms and training of its use will be beneficial for the players in the informal sector. An example is the introduction of an e-commerce platform (adapted for low-feature phones) to market traders with subsidized internet costs to encourage the adoption of technology into their business. The acquisition of digital skills by labour in the informal sector will revolutionize trade in this sector as the reach of these businesses are expanded.
After all that is said and done, we can as a matter-of-fact state that the informal sector contributes greatly to the Nigerian economy and investments in skills development for this sector will bring about an even greater yield in economic growth. Systems and structures also need to be put in place to further strengthen the vocational training and apprenticeships targeted at improving the skills for the informal sector. Furthermore, efforts being utilized for the formal sectors such as training on finance and digital skills should be mirrored for the informal sector so the country can be armed with a doubled-edged sword sharpened with the goal of uncovering Nigeria’s true growth potentials.
Jointly written with Ememobong Etim
https://www.ejbmr.org/index.php/ejbmr/article/view/397
https://elibrary.worldbank.org/doi/pdf/10.1596/9780821399682_CH07
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https://core.ac.uk/download/pdf/234673221.pdf
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