Economic Inclusion: Are we losing the gains

Recent events in the international economic environment and, indeed, the Nigerian economic condition, have raised new concerns for the informal sector in Nigeria. The operators in this sector may be poor and voiceless. They may be distant observers of the goings on, even in their own domains. They may be the typical examples of death in the economic battlefield, having been knocked down and washed ashore to the periphery of the economic mainstream. The fact remains that any developing society that ignores this sector does so at its own high risk. The potential for trouble to be fomented in this sector by the army of able bodied youngsters structured to the sidewalks of comfortable living is very high.

The informal sector is no longer a bunch of boisterous young lads using all manner of illegal activities to earn a living. It is also no longer a sector we can leave behind. In Africa, 90 percent of rural dwellers are engaged in informal sector jobs. It is estimated that even the urban sector boasts of an equivalent share of rural employment. The African Development Bank is said to have estimated the employment created in the informal sector at 80 per cent of the labour force in Africa.

In Nigeria, the informal sector also brandishes intimidating credentials. About 35 per cent of the country’s Gross Domestic Product (GDP) – the monetary value of all final goods and services produced in the county in a given period, usually a year, is said to emanate from the informal sector. This is the kind of potential at which we are looking, and that’s not all. The informal sector in Nigeria is not limited to trading and artisanry activities. It is spread in good proportions among the key sectors of the economy, covering manufacturing, which includes all economic activities leading to the production of tangible goods; the services covering artisanry work, repairs and maintenance; and finance sector, which is mostly of the itinerant and underground banking type, including illegal money lending and such other fringe pretenders to the banking tradition.

Unfortunately, a big informal sector relative to the mainstream economy is not an achievement to celebrate. It is not a measure of the productivity or inventive genius of the people. Rather, it reflects the extent to which government has failed in its duties to the people. It actually reflects the capacity of the people to endure hardship, more than anything else. The size of the informal sector shows the determination of the people to survive, despite all odds. An Igbo proverb says that poverty is not a thing to be proud of. A large informal sector of the size in Nigeria is simply an indictment of a failed political organization.

The Nigerian government will not oppose this assertion and has spent a lot of resources, in terms of time and money, to curb informality and the embarrassment it represents. It is fully aware that if the people had a choice they would prefer to go to work in proper offices than to troop out to Alaba and Ladipo markets as hangers-on. If they had the choice, they would prefer to set up cottage industries and work for themselves. If they had the choice also they will join the civil service of their country and grow in it.

Sadly that is not the case. Those who would like office jobs are screened out by quota, nepotism, god-fatherism or such other vices that have held the country hostage. Those who would like to work for themselves are checkmated by the screaming sound of industrial areas quietened by lack of infrastructure. In Nigeria, one first joins the association of power generating agents before starting to generate any business. Subsequently, one also joins the association of road maintainers and water providers. This is because all these public goods, which are taken for granted in neighbouring Ghana, are sure to kill one’s entrepreneurial zeal before the challenges of entrepreneurship even rare their ugly heads. So, a large informal sector is a beastly mark of leadership failure, for which we all ought to be ashamed.

Now we have a situation, an unhappy economic situation, that favours the expansion of the informal sector. Nigeria has no approved budget as we write this. Very little resources are accruing to government and public spending is down to medieval numbers. New tax heads are being created and targeted at MSMEs that hardly make ends meet. This is one of those few dark places in the world where governments only know how to ask poor companies for taxes but care nothing about increasing the population of corporate tax payers. As things get harder, new tax heads are created to further the woes of all, including domestic servants.

This has grave implications for employment, social wellbeing, and poverty reduction. Companies are laying off staff in their numbers. The linkage between large and small companies, which we have been advocating on this page, is now suffering a major blow. We had posited in this space that it is wishful thinking to spend so much resource on MSMEs to grow them if they do not enjoy beneficial linkages with bigger companies. Those linkages would reflect in large orders from the big companies. Without such orders made consistently for stable periods, MSMEs would be hard put to improve their output, both in terms of volume and quality, and consequently grow.

We are now losing this linkage and the over 37 million MSMEs in Nigeria as at 2013 face the risk of a hard time. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), MSMEs in Nigeria employ about 60m people as at December 2013, representing over 84 per cent of the labour force. These enterprises also contributed about 49 per cent of GDP in the same year, while their share of exports was over 7 percent.

The current economic situation in which government seems to have been bogged down by the share size of governance challenges, probably due to an apparent lack of capacity of many team leaders, will erode the gains so far made in integrating the informal sector. It will lead to an expansion of the informal sector as more and more people lose their economic independence, and head to the informal sector as unwilling entrepreneurs.

This setback will make a mess of the efforts we have made to bring from below the line the activities of the informal sector into national record. Such efforts include the liberalization and formalization of the activities of wonder banks, money lenders and all such pretenders to the lofty art of financial intermediation. Also, we created new institutions and instruments, such as primary mortgage institutions, microfinance banks and such.

The current situation in which the economy is practically in slow motion may be due to circumstances beyond government control. It may also be due to high endemic corruption, from way back and, which is not abating. But this apparent inaction is destroying small businesses. The result will soon show in our national output.

It used to be said that the fear of Buhari was the beginning of wisdom. I do not think that is any longer the case. If people can sneak into the closets of the high and mighty and falsify a document of the stature of a national budget without fear of Buhari, and somehow, strangely, nobody seems to have been severely punished, then the fear of Buhari is waning and if it does, Nigeria has had it.

Emeka Osuji