Providing pensions for the informal sector
Nigeria has a labour force of somewhere between sixty – seventy million, with a total population of a hundred and eighty million. It is estimated that less than ten percent of the labour force comprises of workers in the formal sector. Businessdictionary.com defines the formal sector as one which encompasses all jobs with normal hours and regular wages, with recognized income sources on which income taxes must be paid.
The informal sector, on the other hand is where at least ninety percent of working class Nigerians find themselves. It is the opposite of the formal sector and refers to employment and business activities that are “under the radar.” Operators in this sector are largely unregistered, non-tax paying and contributes nothing towards a nation’s GNP. It is also characterised by low wages, no job security, lack of fringe benefits with no official protection and recognition.
According to the World Bank, the informal sector plays an important and controversial role. It provides jobs and reduces unemployment and underemployment, but in many cases the jobs are low-paying and the job security is poor. It bolsters entrepreneurial activity, but at the detriment of state regulations compliance, particularly tax and labour regulations.
In trying to open up the informal sector for pension penetration, it is important that we understand the informal sector and characteristics of that sector. Here are ten things you need to know about the informal sector in Nigeria:
Informal sector can boost our economy and development if properly harnessed
Just imagine if the sixty million people alleged to be in this income bracket paid some form of taxes or fees to government authorities, there would be substantial funds for investment and development of our economy. For example if thirty million informal sector employees paid two thousand Naira as tax that will generate a whopping Sixty Billion Naira into our economy. Tapping into the informal sector is a money spinner.
Nearly every small business in Nigeria is in the informal sector
You name it – Plumbers, Carpenters, Dry Cleaners, Tailors, Barbers, Taxi Drivers, Motorcycle riders, Traders, Mechanics, Vendors, Restaurateurs, Hair dressers, Security men, Electricians, Housemaids, Printers, Graphic Artists, Cobblers, Panel Beaters, Welders, Vulcanizers, Washermen, Driving School proprietors, Street traders, Water carriers, Fumigators, Make-up Artists, Painters, Bricklayers, Farmers, Watch repairers, currency traders, retailers and many more small players in the economy all come from the informal sector.
Nigeria’s formal sector is grossly inadequate to handle the employment situation. There is simply not enough formal sector job opportunities to take care of the teeming Nigerian population. Truth be told there is hardly anywhere in the world where the number of jobs outnumber the people who need them. However developed societies have found that by encouraging entrepreneurship several informal sector players can be converted to the formal sector. Nigeria has to find this formula to replicate their successes in this regard.
Informal sector business ventures are family based
There is a high incidence of family collaborations in this sector. It is not uncommon to find relatives working together to earn a living from any of the small business opportunities that need to be harnessed. These businesses are a model of continuity as it is passed from generation to generation.
Informal sector’s potentials are grossly untapped and seriously overlooked
Once upon a time there was an oil boom in Nigeria, so successive governments had more than enough to spend so they neglected to diversify the economy, overlooking potentials inherent in the informal sector. Today’s governments cannot afford to be so inclined, what with the utter bust currently being experienced by the oil industry. The informal sector could just be the new oil.
Skills acquisition in the informal sector is largely by apprenticeship and mentorship
The skills required to be successful in most of the informal sector opportunities are not taught in any school. Rather they are taught while on the job through apprenticeship and mentorship methods. It is usually agreed that an apprentice pay certain fees, usually one-off and then spend a required number of years learning and understanding the trade. Once completed he/she is “freed,” from servitude to now begin working for themselves.
Informal sector players have also been able to build wealth
Don’t let the fact that most informal sector players own small businesses hiring a little number of people fool you. Our society is replete with success stories of many in this income bracket going onto build wealth for themselves. Many of them are able to maintain a comfortable standard of living from their ventures.
Majority of those involved in the informal sector are women
According to a 1999 UNDP study over seventy percent of the informal sector workforce in Nigeria is made up of women. These days more and more women are saddled with lots of responsibilities and are required to work to support their spouses, or even raising families by themselves as sole breadwinners.
Informal sector players are also called micro-entrepreneurs
In general, a microenterprise is considered a small business employing 5 or less people, with a low capital base. Internationally, most microenterprises are family businesses employing one or two persons. These micro-entrepreneurs operate microenterprises by choice. Most are primarily interested in earning a living to support themselves and their families. They only grow the business when something in their lives change and they need to generate a larger income. Microenterprise is a common aspect in business communities everywhere.
They are the reason Microfinance banks were established
Microfinance is the provision of financial services to the poor who are traditionally not served by the conventional banks. These financial services include credit, savings, micro-leasing and money transfer and payment services. The features that distinguish microfinance from other forms of formal financial products are; smallness of loans advanced and savings collected, near absence of assets–based collateral and simplicity of operations. These cater exclusively for the informal sector who are unlikely to access capital from other financial services providers.
Without a doubt the informal sector in Nigeria provides a large mass of untapped opportunity for the pension industry, which if tapped have the potential to reduce the challenges of old age poverty and economic hardship among majority of Nigerians.