Nigerian Economy is More Than 40% Informal

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Tuesday, June 21, 2016 9:45AM /FBNQuest Research

The NBS has released data showing the split of GDP between the formal and informal sectors. We learn that the informal economy amounted to N39.0trn in 2015, equivalent to 41.4% of GDP.

Not surprisingly, agriculture was the largest segment, accounting for 46.2% of the sub-total (see chart). Trade was the second largest segment. We fall back on the definition from the International Conference of Labour Statisticians that the informal economy consists of unincorporated enterprises that may also be unregistered/small.

A sole trader may be registered but will not be incorporated. The size of the informal economy in Nigeria therefore should not come as a shock.

The lead position of agriculture, 91.8% of which is deemed informal in the NBS data, tells us to put the on-going expansion of large-scale commercial agriculture into context.

An informal economy on this scale points to substantial uncollected taxes. The greater potential for the FGN to make good the shortfall lies in indirect taxes, notably VAT for which it estimates the current compliance rate at just 10%. Its target of 30% would include efficiency gains and greater efforts in the informal sector. 



With some noted exceptions, the formal economy generates government revenues. An alternative measure for the burden of indebtedness could therefore be the FGN debt stock/formal sector GDP (%): Nigeria’s ratio of 19.8% for end-2015 still compares favourably with its peer group.

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