The growth of Nigeria’s phenomenon informal sector is a complex phenomenon driven by a convergence of demographic trends, economic conditions, cultural practices, and technological advancements.
A recent Jobberman report titled “Nigeria’s Informal Sector; A pathway to sustainable economic transitions for young people”, revealed that with over 100 million youths, Nigeria holds the largest youth population in Africa, yet formal employment opportunities remain scarce. This challenge has pushed a substantial portion of the labor force into the informal sector.
As Nigeria rapidly urbanizes, informal urban economies continue to thrive, offering diverse opportunities for innovation and economic diversification. According to the World Bank’s Nigeria Urbanization Review (2018), activities like street vending, transportation services, and small-scale retail have surged, reflecting the urban-centric nature of the informal economy.
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In recent years, technological advancements have played a crucial role in reshaping the informal sector. Technology-driven ventures have revolutionized traditional businesses, enhancing efficiency, market access, and connectivity. Digitization, in particular, has significantly disrupted conventional work structures, leading to shifts in employment preferences.
According to the National Bureau of Statistics (NBS), many young Nigerians, especially women, are increasingly drawn to informal jobs that offer flexibility, such as freelancing and entrepreneurial ventures. While these changes are often tied to aspirations for entrepreneurship and work-life balance, poverty and the ease of entry into the informal sector remains a pivotal driver.
The report explored factors driving these changes, the challenges faced, and the potential in the informal sector;
1. Education and Workforce Dynamics in the Informal Sector
The Nigerian informal sector comprises highly educated individuals, with over 80% of surveyed workers having formal education and less than 1% having incomplete primary or secondary education. This shift towards a more educated informal workforce is contributing to its rapid expansion, especially in urban areas. As of Q3 2023, informal enterprises in urban segments grew by 25%, with a 20% increase in micro, small, and medium-sized enterprises (MSMEs) and an 8% growth in contributions to the social security fund.
Interestingly, the number of technology firms focused on optimizing the informal sector is projected to double in the next five years, supporting growth and formalization efforts. Despite these advances, wage employment remains low, with only 12.7% of Nigerians in wage employment, while over 90% of the female population works in informal settings.
2. Entrepreneurial Motivations and Work Patterns
The motivation for transitioning into the informal sector often stems from dissatisfaction with formal employment conditions. Low salaries were cited by 80% of surveyed business owners (40% of whom are women) as the primary reason for leaving formal jobs to pursue self-employment or freelance work.
Survey data indicates the following key work patterns in the informal sector:
- 50.53% of self-employed individuals run small businesses.
- 33.55% are employers with paid staff.
- 12.91% are freelancers.
A lack of flexibility, poor role definition, and limited recognition of skills in formal employment are driving these transitions. Freelance platforms further support this shift, particularly in the digital and creative industries, where workers can leverage gig economies but face challenges related to employment protection.
3. Upskilling and Networking Among Informal Workers
Informal businesses in Nigeria have become highly specialized and adaptable, continually upskilling to meet market demands. In a competitive business environment, small businesses-particularly youth-led enterprises- thrive by leveraging peer-to-peer engagements and using social media for business collaborations and skills development. Notably, talents in creative and digital sectors often view formal employment as a stepping stone to acquiring skills that help them develop.
4. Challenges of Income and Social Protection
While the informal sector offers considerable opportunities, it also faces significant challenges, particularly in terms of income stability and social security. Surveyed workers reported varied income levels, with 16% earning less than N30,000 per month, and most workers earning between N30,000 and N60,000. Many (39.61%) stated they could cover living expenses but without room for savings, while 31.14% struggled to meet personal expenses.
The irregular and often seasonal nature of informal work contributes to the sector’s volatility. Many workers earn on a per-job basis, which influences their attitudes toward savings and long-term financial planning. However, informal business owners have innovated by offering welfare packages such as meals, medical support, and educational assistance, though these initiatives remain discretionary.
6. Growth Prospects in the Informal Sector
Self-employment remains the core employment opportunity in Nigeria, particularly for youth and women seeking alternative income sources. The informal sector is expected to grow, especially in digital platforms, which are set to double in the next five years. This growth will create more organized markets, local gig jobs, and freelancing opportunities across various industries.
Agriculture, another key sector, is also expected to expand, driven by increasing food insecurity and the need for core production and support Services. Opportunities for women in agricultural processing, value addition, and farm labor are likely to rise, while challenges such as high feed costs in livestock farming remain.
Conclusion
The informal sector in Nigeria is evolving rapidly, with the youth, women, and small businesses at the forefront of this transformation. While challenges remain, including income instability, lack of formal social protection, and a volatile economic environment, the sector’s potential for job creation and innovation is immense.
Supportive policies and investments in technology, vocational training, and social protection will be essential to harness this potential and ensure sustainable growth in the coming years.