Nigeria has an invisible (but huge) economy

Hey! 👋🏿Sheriff here, and welcome to Next Capital, the weekly newsletter uncovering the most interesting bits of African tech.

Last week, Moniepoint released a report on the Nigerian informal sector - after spending the last decade building payments for the space.

It’s eye-opening and has loads of valuable data points that will change how you see the country.

Let’s get into it. 🥁🥁

The informal economy in Nigeria is the part of the economy outside of banks and office buildings.

It’s made of businesses that are often unregistered and undocumented by official tax and business authorities.

It’s the mom-and-pop shop on the street, the vulcanizer that pumps your car tyre, and the taxi driver on the road.

And if you’ve been on the ground, you know it’s huge.

But just how huge is it?

• 90% of the country’s 40m MSMEs are informal

• 93% of all employment in the country is informal.

• ⁠And it makes up more than half of the country’s GDP.

Here’s what Moniepoint found out about the space. 👇🏾

It’s dominated by young people 👦🏿👧🏿

More than half the space is less than 34 years old. In a country with shrinking wages and high youth unemployment, that makes sense.

Retail (and food) is still king → making up over 53% of spending in the sector.

Beauty, construction, and oil and gas make a show but make up less than 20%.

There’s a huge gender gap in the sector. ♀️

Nine out of every ten working women in Sub-Saharan Africa is employed in the informal sector. And yet, there’s almost a 2:1 split between men and women who own businesses in Nigeria’s informal sector, with only 37.1% of women owning businesses.

⁠Most people want to be paid with dough (cash) 💵

About 53.8% of people say they prefer cash as the primary way of getting paid. It’s faster and much easier to handle.

But their customers are big on digital payments

Digital payments account for 46.2% of customer payments in this sector, with the modes of payment being split between bank transfers and card payments.

Businesses earn little (like, very little)

Only 10% of businesses in the sector make more than ₦500k ($300) in profit every month. But when you lump them all together, the sector is a thousand-pound elephant.

Staying alive is hard

Only 20% of businesses have been around for more than five years. Half the businesses older than five years are passion businesses. People with more than one business are also likely to have run one for more than five years.

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89% of them pay some form of tax.

These businesses pay tax, but often in the form of levies from local agencies. This explains why a lot of them prefer to stay dark, to avoid extra taxation.

Most businesses have borrowed money to stay afloat in the past

That number is at 70% of all informal businesses borrowing funds to keep the lights on.

Most people get business loans from family and friends

Access to formal credit is insanely hard, and only a tenth of business get traditional bank loans. Most people get loans from friends and family, with a growing fraction of people getting credit from loan apps.

Adoption of digital payments doubled after the cash crunch of Q1 2023

In January 2023, the Central Bank of Nigeria introduced a policy to make the country go cashless by redesigning the naira notes. This caused a massive cash crunch that made it difficult for the informal economy (which ran on cash at the time) to function.

Digital payment banks like Moniepoint and Opay grew massively in this period, but this chart shows just how massive.

What has changed?

• Moniepoint is helping out these businesses with access to credit, as 80% of their borrowers are getting a proper business loan for the first time ever.

• They’re working with government agencies to make the business registration process as simple as possible for these businesses.

• They’re banking these informal businesses better. They’ve put a bank on a POS and it’s transforming the informal sector and making it more plugged into the financial sector.

If you’d like to read the full report, you can access it here.

That’s a wrap!Did you enjoy this week’s edition?Hit reply and let me know how much you loved (or hated) it.

Till next week! 🚀