Nigeria’s Informal Economy: Youth and Men Dominate as 90% of MSMEs Earn Under N500,000 Monthly

A recent report highlights that Nigeria is home to approximately 40 million Micro, Small, and Medium Enterprises (MSMEs), with nearly 90% operating in the informal economy. The informal economy, often referred to as the shadow economy, consists of businesses that are untaxed and unregistered, commonly seen among family members, neighbors, and friends with side hustles.

Youth and Men Dominate Sector

The report reveals that over half of the informal economy’s population is under 34 years old, with the largest group (43.1%) aged between 25 and 34. This is followed by those aged 35-44 years, representing 28.9% of informal business owners. Younger individuals aged 18-24 years account for 14.4% of these businesses. The 45-54 years age group makes up 10.0% of informal business owners, while those aged 55-64 years and 65 years and older constitute 2.8% and 0.6%, respectively. Additionally, men dominate the sector, comprising 69.9% of the informal economy population, while women account for 37.1%.

90% Earn Less Than N500,000 Monthly

The monthly profit distribution of businesses in Nigeria’s informal sector shows that the vast majority earn relatively low profits. Approximately 90% of these businesses make less than N500,000 in monthly profits. Specifically, 79.4% of businesses report monthly profits of less than N250,000, while 10.3% earn between N251,000 and N500,000. Only a small fraction earn over N2.5 million monthly.

Further breakdown shows that 6.6% of businesses have monthly profits ranging from N501,000 to N1 million, 2.3% earn between N1.1 million and N2.5 million, and a mere 1.3% make over N2.5 million monthly. Notably, 8 out of 10 businesses in the informal sector have been operational for less than five years.

Retail and Food Sectors Lead

Retail and general trade, along with food and drinks, account for over half of the value of Nigeria’s informal economy. Retail and general trade represent 38.4% of the sector, while food and drinks account for 15.2%. Other notable categories include oil and gas (9.6%), IT/electronics (6.9%), construction (5.9%), and agriculture (4.6%).

This report provides critical data, insights, and expert perspectives to illuminate Nigeria’s shadow economy, shedding light on the dynamics and challenges faced by millions of informal businesses in the country.