IGR and Formalising the Informal Economy in Nigeria

IGR and Formalising the Informal Economy in Nigeria

IGR and Formalising the Informal Economy in Nigeria

Free Online Articles Directory

Why Submit Articles?
Top Authors
Top Articles
FAQ
AB Answers

Publish Article

0 && $.browser.msie ) {
var ie_version = parseInt($.browser.version);
if(ie_version Hello Guest
Login

Email

Password

Remember me?
Lost Password?

Home Page > News and Society > Economics > IGR and Formalising the Informal Economy in Nigeria

IGR and Formalising the Informal Economy in Nigeria

Edit Article |

Posted: Aug 27, 2010 |Comments: 0
|

]]>

Nigeria has had a tumultuous history, marked by decades of virulent political and civilian strife since its independence in 1960. The oil boom of the ’70s brought windfall profits to the emerging state, but corruption and gross mismanagement blighted economic indicators and rendered the vast majority of its population destitute. A reforms process initiated after the first democratically elected government was sworn to power in 1999 is beginning to show results, but hardly of the nature or scale that can reassure a country desperate to shake off its Third World heritage.

At the ground level, the extended economic stagnation and Nigeria’s persistent failure to enforce corrective policies spawned a flourishing informal economy – the aggregate of financial and business activity that operates outside government control, contributing neither in taxes nor in contribution to the country’s GDP. It includes everything from backyard employment and self-help finance to street vending and unregulated manufacturing. Nigeria’s vast informal economy of products, services and financial services was born out of necessity but is now estimated to contribute up to 65% of current Gross National Product. Even with a significant readjustment of the percentage, there is no debate that the state is losing out on millions in internally generated revenue (IGR) because of activity in the unorganised sector. IGR, or inland revenue, refers to state earnings from levies and taxes. Although current figures for Nigeria’s federal IGR are unavailable, it has been traditionally diminutive in relation to the country’s oil profits, which account for 85% of state revenue.

Across the African continent in general and especially in Nigeria, the informal sector no longer plays an auxiliary role but leads official economies in terms of maintaining livelihoods and creating new jobs. The present Nigerian government accepts that more than 90% of all new jobs are being created by this unorganised sector. The Lagos report in fact goes a long way to show that, even if only subconsciously, Nigeria is vitally dependent on its informal economy. Moreover, it needs to cultivate this sector and bring it under the tax regime if its long-term macroeconomic goals are to be achieved. The Nigerian informal economy is therefore critical on two counts: in terms of untapped revenue and, more importantly, as the driving force behind rapid enterprise development for durable economic growth. This is what the government can do to gradually subsume the informal economy under its jurisdiction:

* Devise innovative policy to bring unorganised activities under official purview through a system of sops, tax breaks and finance aimed at both existing and emerging unregulated businesses.

* Streamline tax and business regulations for universal applicability; crack down on systemic corruption through stringent penalties.

* Promote a credit environment sympathetic to small business realities. Government effort should concentrate on promoting lending through equity, not debt, because Nigeria’s informal economy is mostly about high-risk ownership businesses.

* Improve productivity in small businesses through infrastructure development and removal of trade and administrative barriers. Enhancing technical support and capacity building assistance to aid existing and emerging entrepreneurs.

* Transform education at the vocational and skills level to create a dynamic manpower base that is equipped to meet entrepreneurial challenges. Creating supplementary programmes for relevant technology and computer education.

Spain provides a sterling example of how it can be done right. Through the 1990s, the Spanish government pursued a radical reforms programme, easing corporate taxes and regularising labour laws. The outcomes was a drastic 40% fall in the unemployment rate over a period of six years, fuelled by massive job opportunities in the informal sector. Even though tax rates had been slashed, the government augmented revue collected from small companies by over 75% by bringing more of them under regulation.

Even though Nigeria has been the second largest economy in the continent after South Africa for years now, independent researchers have long been pointing out that the ranking is unrealistic in the sense that it takes no account the vast Nigerian parallel economy. The theory may not be unlikely but is near impossible to prove because sufficient relevant data for Nigeria is unavailable. There is no doubt however that the country’s future position in world affairs hinges considerably on the development and formalisation of its massive informal economy. In terms of attitude, what it requires foremost is the suspension of conventional perceptions with regards to the unorganised sector: in other words, a paradigm shift in economic policy outlook and execution.

The process of Nigerian economic reforms that began in 2001 has seen concrete steps aimed at boosting the private sector:

* A bank consolidation programme was initiated in 2004 to fortify financial institutions and enhance credit access to the private sector.

* Rapid disinvestment in large enterprises was started with the privatisation of mining, communication and oil marketing corporations.

* The government deregulated oil prices in 2007 and enforced the national Fiscal Responsibility bill and the Pubic Procurement bill.

Some of these measures have produced tangible results, cutting inflation and boosting international currency reserves. Their long term effects though are yet to be observed or examined.

In December 2008, the government of President Umaru Yar’Adua presented budget proposals for withdrawal of 0 million in African Development Bank trust funds to issue 10-year government bonds. The move was part of the treasury’s efforts to plug a substantial budgetary deficit amounting to almost 4% of GDP. Sadly, short term-measures such as this otherwise unremarkable decision have defined Nigerian economic policy for more than the last half century. What it needs in order to shed its Third World credentials is a unified, innovative strategy that reverses overdependence on oil and actively seeks to formalise its informal economy.

Specifically, Nigeria needs to come up with practical measures to convert its traditionally survivalist practices into entrepreneurial ventures that contribute revenue, create more jobs and provide innovative products and solutions. A number of Abuja’s policy directives in recent years have sought to reform the old economy to ostensibly promote small businesses and seed an entrepreneurial revolution. Besides its obvious contributions in terms of employment and income generation, the Nigerian informal economy is responsible for a number of positive effects -

* It allows a productive outlet for a huge population of Nigerians who are self employed by choice or necessity.

* It creates economic competition and promotes innovative business practices relevant to local realities.

* Most importantly, it mobilises Nigeria’s significant human resource pool that would otherwise be unused, or worse, ill-used.

In the Nigerian context, formalising the informal economy is synonymous with enterprise development and long-term macroeconomic growth. An endeavour of such moment calls as much for creative innovation in policy design as it does motivated implementation. In light of the country’s troubled past, its government would also do well to build popular consensus on important issues before trying to enforcing radical laws. Far reaching change, however, will only come with the realisation that leveraging the informal economy is key to resolving the age old Nigerian paradox – a country of enormous resources with extreme poverty.

Retrieved from “http://www.articlesbase.com/economics-articles/igr-and-formalising-the-informal-economy-in-nigeria-3142786.html”

(ArticlesBase SC #3142786)

Liked this article? Click here to publish it on your website or blog, it’s free and easy!

peter osalor -
About the Author:

Peter Osalor is a multi-skilled director, chairman of trusts, proprietor and consultant. Peter Osalor has been a successful entrepreneur since 1992 when he formed Peter Osalor & Co and which has since grown to a very large client base with a turnover of millions. He is currently a fellow of the Association of Chartered Certified Accountants (ACCA) and the Institute of Chartered Accountants in Nigeria (ICAN). Peter is also a member of the Chartered Tax Advisors and the Chartered Institute of Taxation in Nigeria (CITN).

]]>

Questions and Answers

Ask our experts your Economics related questions here…200 Characters left

How do i get the information (annual data) on market capitalization and gdp in uk ?
What are the roles of government in a market-based economy ?
I am planning to take a vacation with my wife to Spain in Valencia, I need information about renting a villa as far as prices, close to the beach. Can you wirte me at nicrebel63@yahoo.com

Rate this Article

1
2
3
4
5

vote(s)
0 vote(s)

Feedback
RSS
Print
Email
Re-Publish

Source: http://www.articlesbase.com/economics-articles/igr-and-formalising-the-informal-economy-in-nigeria-3142786.html

Article Tags:
nigeria, government control, gdp, igr, spain, umaru yaradua, osalor, informal economy, entrepreneurial ventures

IGR and Formalising the Informal Economy in Nigeria

Speak Your Mind Cancel reply

Who's Online

Pages

Recent Posts

Categories

Recent Comments

Meta