CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The growth of the urban sector has seen the establishment

and growth of the informal sector all over developing countries.

The informal sector has been observed to be the entry point to

the city for migrants who leave their villages with the hope of

availing themselves of higher urban income than their

agricultural income (Chaudhuri, 1989).

The urban informal sector, in economics, is an integral part

of any economy that encompasses all income-producing activities

outside formal wages and social security payments. It consists of

enterprises that involved in heterogeneous set of activities

which includes trading, hawking, carpentry, brick making, cement

mixing, mechanics, welding and tailoring among others. Typically,

it consists of units established, owned and operated by self-

employed persons either alone or in partnership with others for

1

the primary purpose of generating their own employment and income

through the production or distribution of goods or provision of

services (Alabi, 2006). The informal sector is generally viewed

as another sector outside the normally organized formal sector

that provides employment and sustenance through engaging in a

variety of activities, such as street trading, hawking,

vulcanizing, local manufacturing and cobbling to mention but a

few. It is the part of an economy that is not taxed, monitored by

any form of government, or included in any Gross National Product

(GNP), unlike the formal economy. In developing countries, more

than 60% of the potential working population earns their living

in the informal sector. The sector is the only way to earn a

living for people who are self-employed outside the formal

economy and not on anyone's payroll (Magbagbeola, 1996).

The informal sector is characterized by small scale

operations, labour intensive techniques, low-income families,

private and indigenous ownership of enterprises that are largely

unprotected by government (Lawanson, 2011). The main features of

informal sector economic units are: ease of entry; small scale of

the activity; self-employment; little capital and equipment;2

labour intensive technologies; low skill; low level of

organisation with no access to organized markets, formal credit,

education and training or services and amenities; low

productivity and low income. Informal sector participants

generally live and work in appalling, often dangerous and

unhealthy conditions, usually without basic sanitary facilities,

in the shanty towns of urban areas (Lawanson, 2011). The drive

for profit maximization of people in informal sector informs

their strategic location at road junctions, various bus stops and

points of high pedestrians traffic. Lagos state government has

had to contend with the activities of the informal sector over

the years (Oshinowo, 2007).

The policies made by some economies to guide the activities

of informal sector were parts of the broader laissez-faire

approach of economic policy in the 1980s and most of the 1990s.

In this period the focus of economic policy narrowed from the

pursuit of broad-based development, full employment and high

levels of income for all to concentration on fighting inflation,

encouraging private investment and promoting market forces at all

costs. The policy package advocated by neoclassical economists

3

for developing countries also included devaluation of the

currency; removal of subsidies for basic commodities; reduction

of government expenditure on education, health and social

protection; employment reductions in the public sector; labour

market reforms to increase flexibility and mobility in the formal

sector; and reduced trade protection. All these seem to make

informal sector activities thrive and also stimulate policy

makers to see it as an avenue for income generation (Maldonaldo,

1995).

The rationale for this policy package was a belief that all

government intervention was bad: that government cannot make a

positive contribution to jobs and growth and that the economy

should be left entirely to market forces. In developing countries

it was argued that government intervention had distorted or

removed the incentives for export industries, particularly

primary industries in which developing countries were thought to

have a comparative advantage. The policy measures mentioned above

were designed to remove or reverse this situation, thereby

creating incentives to increase the production of exportable

goods, mainly in the agriculture and resource extraction sectors

4

of the economy. Stabilization policies were also designed to

reduce the disposable incomes of urban wage earners and their

expenditure on consumption, thereby reducing the demand for

imports. The stabilization and structural adjustment policies

were expected to stop inflation, correct balance-of-payments

problems and encourage private capital inflow. In talking about

the policy package in the 1980s, neoclassical economists and

representatives of the International Monetary Fund and the World

Bank would often talk about "getting the prices right", by which

they meant creating the incentives for private entrepreneurs in

developing countries to produce more basic exportable commodities

(Maldonaldo, 1995).

The outcome of these policies was detrimental in most

countries. The promised economic rebound through export-led

growth failed to materialize in most countries, and unemployment

and underemployment increased, while access to health, education

and other social services diminished. At the same time, however,

marked inequalities in income, access to work and the quality of

jobs were reintroduced as a result of implementing these policies

both within countries and between countries. In part, these

5

inequalities derived from promoting a global economy and powerful

multinational companies while simultaneously strangling social

protection at national level, eroding worker solidarity and

replacing collective responsibility with individualized working

relationships. These pave way for a "free rider" problem; in

which the entrepreneurs in the informal sector are reluctant to

pursue a strategy that might involve slightly higher labour costs

in the short term in order to achieve higher productivity and

lower unit costs in the longer term, because they fear that other

entrepreneurs will refuse to follow the same strategy. The

entrepreneur who does not implement market standards can afford

to under price those who do, and drive them out of business

before they have the opportunity to enjoy the productivity

benefits that flow from implementing market standards. This is

yet another example of market failure and an economic rationale

for government intervention in the form of market legislation,

market inspection and enforcement of minimum labour standards

throughout the economy (Fluitman, 1997).

Lagos state government is not left out of intervening in

informal sector economic activities, by redirecting renewed

6

interest at informal economy because of its economic viability

that can bring about income generation in the state if properly

monitored. The Lagos State government then deemed it fit to

implement the policy of formalising the informal sectors as a

perceived channel to achieve the goal of income generation in the

state and improve socio-economic performance of the informal

sector. This is because the impact of policy of formalising the

informal sectors on improving the service delivery of informal

sector business, employment opportunity, reducing poverty and

increasing internally generated revenue has recently gained much

attention in the literature (Lagos, 1995; Abeysekera, 2007;

Davies and Thurlow, 2009).

Thus, the assessment of the policy made by the Lagos State

Government in formalising the informal sector with the aim to

improve their service delivery, and increase internally generated

revenue in the state, forms the focus of this paper.

1.2 Statement of research problem

The contribution of the informal sector to any economy as a

result of its socio-economic performance, particularly in terms

7

of employment generation, poverty reduction, income

redistribution, human capital development and entrepreneurial

demonstration, cannot be overestimated. According to one

estimate, more than 70 per cent of those working in the non-

agricultural sector are employed by the informal sector in

Nigeria (International Labour Organisation, 2002). Due to

inadequate employment opportunities in the public and private

sectors, many people are forced to join the informal sector to

earn a living. Although their earnings remain low and a large

number are classified as poor, but without the informal sector

opportunity, to earn a living would had been more severe. In

essence, informal economic activities have remained a very

important sector in the Nigerian economy. The informal sector

plays an important role in employment creation and poverty

alleviation by providing incomes to unskilled and semi-skilled

workers who otherwise would be unemployed (Malik, 1996).

Regardless of the important role that the informal sector

plays, the question which arises is: what should be the

appropriate role of the State to the informal sector in an

increasingly market-oriented economy? Two distinct policy

8

approaches have emerged. The first, taken by the ILO (1991),

recognises the poverty and low productivity characteristics of

the informal sector for which the sector requires supportive

State intervention in the areas of credit, technical support and

infrastructure. The second approach, developed by the World Bank

(2000), assumes that the main obstacles to informal sector

development are the market distortions created by State

intervention, controls and restrictions. The requirement is,

therefore, not State support, but deregulation, and freeing up

the economy to the interplay of market forces. There, thus, are

two different views of the role of the State.

The use of the State to foster growth and development has

been common in developing countries. The role of the State in

ensuring a better distribution of economic resources has been

emphasized by many writers. Two important roles of the State have

been identified. The primary role is to provide the underlying

rules of the game, for example, a well-defined property rights

regime, and appropriate and effective judicial, defence and

regulatory system for the enforcement of these and other

fundamental human rights (Goorha, 2000). The second crucial role

9

of the State is to provide certain basic public goods and

services that may be under-provided by the private sector.

The formal sector is dependent on the State for

institutional support, whereas for long the informal sector

remained outside State support. Only more recently have

governments began to see themselves as facilitators in the

development of the informal sector. Whether mere facilitating

role, as against a more interventionist role, would be sufficient

is open to debate. What does seem to be gaining grounds, within

the neo-liberal market framework, is the need to create ‘an equal

opportunity policy for both the formal and informal sectors.

Positive as well as negative discrimination of either sector has

to be replaced by the introduction of free market principles’

(Overy and Piamonte, 1996).

In most developing countries the informal sector is vast,

heterogenous in terms of activities and occupations, and

expanding rapidly. Yet working conditions in the sector are

normally oppressive and often unsafe; incomes of unregulated wage

earners and the self-employed are usually at or below the poverty

line; access to State-provided social protection, training, and

10

social services is severely restricted; exploitation and

infringement of workers’ rights are common, thus, general

economic performance of the informal sector is adversely

affected. For the vast majority of dependent and own-account

workers, the informal sector is not a stepping stone to

improvement but a strategy for survival (Akintoye, 2006).

However, many of informal sector business enterprises enjoy

the government infrastructure facilities in the conduct of their

services for which no payments are made. This is possible because

of lack of accurate data on the nature and number of informal

business enterprises. Likewise, their incomes, the number of

employees and their wages are unknown which are essential for the

calculation of GDP and other economic indicators. This results in

the difficulty of implementing various social security and

business facilitation programmes of the government and local

government institutions. For instance, banks and other financial

institutions cannot recognize unregistered informal businesses

for granting loans and various other benefits. Thus in the long

run, the informal sector faces problems of business growth when

seeking to raise capital. This then calls for crucial role to be

11

played by the government or non-governmental institutions to

educate the informal sector employers/participants about the

benefits of becoming formal (Renooy, 1990).

A critical challenge about the informal sector in Nigeria

rests on how to fully tap the potentials that they offer,

especially in providing necessary support to improve their

capacity to operate on better scale and make them responsible in

tax generation to the state government. Many of the informal

economic activities are run in a way that they negatively impact

on the environmental conditions. The conduct of their business

activities is done in a crude and unaccountable manner. The

primary source of air pollution in most cities is exposure to

toxic fumes from the activities of some informal sectors like

small and medium scale industries. This is sometimes responsible

for a wide variety of respiratory infections and even more

serious diseases of the lungs among women and children. Noise

pollution is also a major problem. This manifests in form of

bells rung incessantly by peddlers, hawkers, and other salesmen

to advertise their ware. Highly amplified music from record shops

and noise from private electricity-generating plants and grinding

12

machines, all these cause irritation, and can in extreme cases

even impair hearing. Insanitary conditions prevalent in many

informal workplaces cause continuous health hazards. Bad health

reduces people’s earning capacity giving rise to vicious circles

of poverty (Geoffrey 2005).

The ILO has been showing interest and proposing policies on

the informal sector for almost 30 years. The general policy

approach traditionally advocated by the ILO has been a compromise

that attempts to preserve the income-generating potential of the

sector while removing exploitation and gradually raising

employment standards. Over the years the international trade

union movement has kept abreast of this research and actively

participated in tripartite discussions regarding this sector. The

search for consensus between the interests of employers, trade

unions and governments in debates about the sector have resulted

in endorsement of the compromise mentioned above, which aims at

the gradual integration of the informal sector into the modern

economy.

In the last decade trends in the magnitude and nature of

informal sector activities have diverged significantly between

13

the different regions. Yet nowhere is the pace towards

integration into the modern sector adequate, and in the vast

majority of developing countries the informal sector continues to

multiply and act as a magnet drawing incomes and labour standards

of workers in the modern economy down towards the lowest common

denominator. Faced with these trends, trade unions increasingly

realize that it is time to re-examine and expand upon the

policies that should be implemented by the State if the rhetoric

about gradual integration of the informal sector is to be

realized.

To overcome the aforementioned challenges, translation of

their economic activities from informal to a formal level is

important. Going by the literature, the Lagos state government

had made certain attempts in this direction. Many states in the

country also have the plan in the direction of formalising

informal sector within their geographical area. However, the

strategic approach to actualise the formalisation is an issue for

such states. Thus, this study seeks to assess the Lagos State

attempt towards formalising the informal economic activities

within the state. This study is expected to provide guidelines

14

that other states can adopt in the process of formalising the

informal activities and the questions are:

1.3 Research questions

(a) What are the nature and characteristics of the urban

informal sector in Lagos State?

(b) What were the strategies adopted by the Lagos State

government in formalising the informal sector of the

state?

(c) What impact does formalizing the informal sector have

on the performance of business enterprises that have been

formalised in Lagos state?

(d) What implication do the steps to formalise the informal

sector have on the internally generated revenue in Lagos

State?

1.4 Objectives of the study

15

The main objective of this study is to assess the government

policy on income generation from urban informal sector in Lagos

State.

The specific objectives are to:

(a)examine the nature and characteristics of the urban

informal sector in Lagos State;

(b)identify the different strategies adopted by the Lagos

State government in formalising the informal sector;

(c)assess the impact of the informal sector formalisation

on the performance of business enterprises in Lagos

State; and,

(d)examine the impact of the informal sector formalisation

on internally generated revenue in Lagos State.

16

1.5 Justification of the study

In a country where policy measures that ensure adequate

internally generated revenue in most of the States are non-

existent, the need to assess the policy instruments implemented

by the Lagos State Government to generate income from the

informal sector cannot be overemphasized. This is rightly so as

the informal sector has served the crucial role of a ‘safety

valve’ that provides employment opportunities for the ever

increasing million of persons who are using the sector as a means

of survival. Besides, its contributions to income and

productivity are equally considerable. Thus, the significance of

this study lies in the need to examine the informal sector

activities as a “target” group, in order to assess the socio-

economic impacts of policy of formalising the informal sector

activities adopted in Lagos State, on the socio-economic well-

17

being of operators in the sector. Also, taking critical

cognizance of the nature, characteristics and economic

performance of this sector and the internally generated revenue

from the sector by the Lagos State Government, are of vital

significance if Nigeria is to achieve the desired goal of

formulating any meaningful public policy for overall national

development.

The informal sector is important in Nigeria because close to

70 percent of unskilled and unemployed youth often end up there.

Thus, it has high potential for employment and income generation

if suitable government policies are put in place. The Micro,

Small and Medium Scale Enterprises that are categorized under the

informal sector, are largely responsible for the growth and

vibrancy of economies. The sector provides productive outlets for

a large number of people who prefer or have to be self-employed.

It gives room for competition in the economy. It provides outlets

for experienced persons from the medium and large scale

enterprises who wish to be self-employed with minimal capital. It

stimulates and enhances innovation and adaptation. Informal

18

sector also helps in the mobilisation of capital and human

resources, which would otherwise have been laid waste and idle,

thereby increasing the utilisation of virgin reusable materials.

This sector, therefore, contributes unnoticeably to the national

economy in terms of output and employment (Meagher, 2006).

The main ‘advantage’ of being informal to the informal

sector is the financial benefit gained by tax evasion and non-

compliance with government regulations. But in the long run, the

informal sector faces problems in the ‘growth stage’ of their

businesses when seeking to raise capital by way of bank loans.

This is due to the fact that, in many less developed countries

majority of the participants in the informal sector operate their

business in a crude way. So, operations of the participants at

the informal sector in less developed counties appear not to

guarantee growth in scale of activities, income and employment

generation. Besides, it is the problem of inability to sustain

the business after the demise of the original owner. In addition,

efforts by the state governments to provide assistance for the

19

participants in this sector have always been a challenge due to

their informal mode of operation (Quadrl, 2010).

It is indisputable that there exists a nexus between the

above-discussed disadvantages of the informal economy and

poverty. Poverty is inevitably associated with powerlessness,

vulnerability, deprived access to justice, lack of property

rights restraining access to capital, malnutrition, and the

likes, which are all ills of the informal economy. Many

developing member countries of the UN including Nigeria have

accepted the rights-based approach to development (which includes

legal empowerment of the poor), and accordingly follow the eight-

fold Millennium Development Goals (MDGs). It is obvious that this

endeavour of developing countries should be synonymous with the

process of formalizing the informal economy (Castells and Portes,

2002).

The benefits associated with formalising the informal sector

range from becoming well organized, having access to credit

facility, carrying out institutionalised activities to ensure

proper relation with the government, and revenue generation for

20

the governemrnt. The simple reason for formalising the informal

activities is enhancing the social and economic development of

the country involved. It has been observed that even a small

formalisation process would probably give rise to an increased

economic growth. However, the formalisation of informal

enterprises in many developing countries including Nigeria is a

difficult process. This is mainly due to higher costs and longer

delays (than those in developed countries), associated with the

adherence to the laws and regulations (Aminah, 2001).

Thus, there is a drive in the direction of formalising the

informal activities among the community of nations. However, the

best way to achieve the goal of formalising their activities has

been an issue. Due to the substantial need for public services in

Lagos, and the limited allocation from the Federal Government,

the State relies greatly on revenue generated within the state to

increase the budget to a size where the Government is able to

provide an adequate level of service to Lagos’s citizens.

Therefore, the current study is set to document the process that

had been followed in Lagos State and evaluate how successful it

was. In essence from this study, a blue print that other States

21

in Nigeria can follow is expected to emanate. Assessing the

policy put in place by the Lagos State government in formalising

the informal sector therefore becomes pertinent to this study. It

can also enable us to see whether, suitable policies that can be

geared towards unemployment reduction, poverty reduction and

increasing internally generated revenue of the government, can

emanate from such efforts.

1.6 Scope of the study

The study focuses on informal sector operators and their

activities in Lagos State. The target operators examined in this

study comprised those involved in production, wholesale and

retail and social service operations. It covered twenty out of

all the Local Government Council Areas, namely Apapa, Ajeromi-

Ifelodun, Agege, Alimosho, Amuwo-Odofin, Badagry, Epe, Eti-Osa,

Ibeju-Lekki, Ifako-Ijaye, Ikeja, Ikorodu, Kosofe, Lagos Island,

Lagos Mainland, Mushin, Ojo Oshodi-Isolo, Shomolu, and Surulere

Local Councils. These councils were chosen to constitute our

population of study as it was impossible to study all informal

sector operations in Lagos State. The whole local government

22

councils in Lagos State were used as the sampling frame. Multi

stage sampling technique was employed as the sampling procedure,

in which 20 local government councils named above were selected.

1.7 Organisation of the study

The first chapter introduced the study. The second chapter

focused on the review of the relevant literatures. The third

chapter spelt out the theoretical framework, conceptual model and

methodology for the research. The fourth chapter dealt with the

presentation of the results of the analysis of the data, in which

Epi-Info was used for data entry while SPSS was used for

analysing the primary data that were collected from the

respondents. The Summary, Conclusion and Policy Recommendation

were discussed in the fifth chapter.

CHAPTER TWO

LITERATURE REVIEW23

This chapter starts with the history of taxation in

Nigeria, followed by review of theoretical literature, review

of empirical literature and informal sector in Nigeria.

2.1 History of Taxation in Nigeria

Traditionally, there seems to have been an assumption

that with a basic level of assistance to taxpayers, together

with an enforcement programme, tax compliance could be

maintained at satisfactory levels. However there seems to

have been a shift in attitude towards treating the taxpayer

as a passive donor who simply has to be billed for taxes due

to being recognized as a customer, sometimes requiring

particular forms of assistance and support. The primary

purpose of taxation is to benefit rather than punish

citizens; this would seem to be an appropriate policy. No

doubt, sanctions will always have to exist to support tax

administration, but there are important questions as to the

extent they are needed and the enthusiasm with which they

should be enforced. The more modern approach to tax

compliance has benefited from many contributions from

24

different disciplines. It also means that as taxpayers they

can normally be expected to act as responsible citizens, that

is, in normal circumstances, they should conform to

reasonable obligations of the tax system without the need for

rigorous application of enforcement activity (Wenzel, 2001).

Direct taxation has been in existence in Nigeria before

the advent of the British rule in 1861: particularly in the

North where there was an efficient and stable administration

based on Islamic system (Abdulrazaq, 1993).

There were various forms of taxes in the Northern

Nigeria in 1861, such as the “Zakat” ( a tax levied on

muslims for charitable, religious and educational

purposes ), “Kurdin Kasa” (an agricultural tax), and

“Jangali” (a cattle tax levied on livestock). In the South

Western Area, there were various forms of taxes such as

“Isakole” (tax levied on land used by local communities who

are normally expected to pay “tribute tax” to the local

chief), “Owo-ori” (tax paid by every individual in the

community to the government)

25

The Eastern Area of Nigeria is said to be premised on

the republican nature of the Igbos. The following are some of

the form of taxes in this area: “egbu-nkwu” (tax imposed

before palm oil is harvested, it is compulsory and there can

be no harvest without it), community effort (tax on members

of each community for specific purpose, it is also applicable

in the Western Area of Nigeria). It is possible for those who

are unable to physically take part in the community work to

pay their levy in cowries (form of cash), food as well as

palm wine.

During the pre-colonial era, taxation functioned more or

less on an ethnic basis with a centralized authority,

administrative machinery and judicial institutions such as

the Northern areas where we have “Emirs”; Yoruba and Benin

Kingdom where we have the “Obas”. In the non chieftaincies

areas like the Igbo, Tiv, Bura, Igbira and Bachama areas,

there exist little or no form of organized taxation

(Abdulrazaq, 1993). It should be noted however, that taxes

were not necessarily paid in money during this period. They

26

were mostly paid in kind and obligatory personal services

otherwise known as “tribute taxes”.

The creation of the Colony of Lagos in 1862 brought

about the English law, therefore the income tax as we have it

today was first introduced in Nigeria by the British through

Lord Lugard in 1904 (Due 1962) as cited in Abdulrasaq, 1993.

To raise additional revenue, Lugard took steps to institute a

uniform tax structure patterned on the traditional system

that he had adopted in the North during his tenure there.

Taxes, therefore, became a source of discontent in the South

and in effect contributed to disturbances protesting British

policy.

An amended ordinance that extended the provisions in the

Native Revenue Ordinance of 1917 to Southern Nigeria was

passed in 1918. The first ordinance applied to Abeokuta in

Ogun State and Benin in Edo State, and in 1928 it was

extended to Eastern Nigeria.

The Native Revenue Ordinance of 1917, 1918, and 1928

were later incorporated into the Direct Taxation Ordinance

27

No4 of 1940, cap 54, which repealed the Native Revenue

Ordinance, cap 74, of the 1923 edition and the Native Direct

Taxation (colony) Ordinance No 41 of 1937. The Direct

Taxation Ordinance of 1940 could therefore be the fore runner

of Nigerian tax legislations. Under the ordinance, the

Europeans in the regions were not subjected to tax in the

region in which they were resident whereas both the Africans

and

Europeans in the Federal Territory of Lagos were taxed.

This situation led to the Raisman Fiscal Commission of 1958

that recommended the introduction throughout Nigeria of basic

principles for taxing incomes. This recommendation was

embodied in the Nigeria Constitution Order in Council of

1960, and formed the basis of the Income Tax Management Act

of 1961 (Ola, 1981).

It is clear to note that the Nigerian tax system,

although not documented, was virile and alive except for the

differences in nature and method. Without a good tax

structure that was in place in the North, it would probably

have been tougher for Lord Lugard to start off the exercise.

28

A good organization in place in the North, made it possible

for him to lay proper foundation through codification and

hence the subsequent extension to other part of Nigeria after

the amalgamation.

In the Eastern Area of Nigeria, the initial attempt in

1928 to codify and restructure the tax after the enactment of

the Native Revenue Ordinance practically resulted in the well

known “Aba riot” of 1929, which was triggered off from the

imposition of taxation on the Ibo women. “The Ibo women, in

our opinion, merely served as fronts for their men who would

have needed to pay more tax anyway” (Otusanya, 2001).

2.1.1 Recent Tax Trend in Nigeria

Nigeria is governed by a federal system, hence its

fiscal operations also adhere to this system. This has

serious implications on how the tax system is managed in the

country. In Nigeria, the government’s fiscal power is based

on a three-tier tax structure divided among the Federal,

State, and Local governments, each of which has different tax

jurisdictions. As at 2002, about 40 (forty) different taxes

29

and levies are shared by all three levels of government

(Odusola, 2006). The Nigerian tax system is lopsided, and

dominated by oil revenue. The most viable taxes are under the

control of the Federal government while the lower tiers are

responsible for the less buoyant ones.

The first notable change in this modern trend was the

Income Tax Management (Uniform

Taxation Provisions) Decree No 7 of 1975. This unified

reliefs and rates throughout the country, thus, resolving to

some extent, the proliferation of various tax laws in the

different states of the Federation.

The 1979 constitution vested the power to legislate on

the taxation of income, profits and gains in the Federal

Government with the effect that the various State tax laws

were deemed to have become Federal tax laws. Subsequently,

politics and sentiments dictated the action of Government.

Pool tax, development rates, community tax and cattle tax

were abolished even in States where it eventually became

30

difficult, if not impossible, to pay workers’ salaries, due

to political expediency.

But as a result of the oil glut and subsequent decline

in Federal Revenue and Statutory Allocation, many states

hurriedly passed Sales Tax Laws in order to increase

internally generated revenue. The oil glut did not abate even

after the civilian administration was overthrown by the

Military on 31st December, 1983.

The Military Government that took over on 31st

December,1983 inherited substantial decline in the main

revenue source of the nation, which is oil. Therefore, the

various state governments were encouraged to find ways of

increasing internally generated revenue. The first step was a

nationwide reorganization of the Revenue Department and the

declaration of an open war, unprecedented in the history of

taxation in Nigeria, on the social evil known as ‘tax

evasion’.

With this freedom, many State Governments decided to

improve existing revenue sources and break new grounds. Some

31

State introduced Sales Tax, Business Premises Tax, Property

Tax, Social Function or Merriment Tax, and Sand Dealer Tax,

while some re-introduced Pool Tax. Therefore, in effect,

income tax has now become one of the major sources of revenue

of all governments and it has become a factor to be reckoned

with in both Federal and State Governments budgets.

In 1985, the Federal Military Government promulgated the

Miscellaneous Taxation Provision Decree, otherwise known as

Decree 4. This law, among other things, increased personal

allowance slightly, empowered tax authorities to request from

any Bank any information about customers. From April 1, 1978,

interest received by banks in respect of loan granted for

agricultural trade or business and from April 1, 1980, for

purposes of manufacturing goods for export were, up to

December 31,1990, exempted from tax on graduated rates which

varied between 40% and 100% depending on repayment and grace

periods. From January 1, 1991 such interest is fully exempted

from tax provided the moratorium period is not less than 18

months and the rate of interest on the loan is not more than

32

the ‘base lending rate’ (that is ‘weighted average of the

cost of funds to a bank’) at the time the loan was granted.

In 1992, the government introduced self assessment scheme,

tax incentives to the Unit Trust to prevent double taxation and

excess profit tax was abrogated. Furthermore, the 1992 amendments

include: increase in personal income tax allowances, increase in

the table of tax rates for personal income tax, introduction of

rural investment allowance and treating Withholding Tax as an

advance payment of tax – a reversal of the 1987 provision under

the Income Tax Management Act. In 1993, the Personal Income Tax

Decree 104 was promulgated which replaced the old Income Tax

Management Act of 1961. The decree provided for increase in the

table of rates for the taxation of individuals.

Nigeria tax law is purely statutory. The tax system thus

features a wide and mixed range of statues by which the various

governments in the country seek to charge and collect revenue for

public expenditure. Of these, the most widely based are on income

taxation. Liability to personal income in Nigeria does not depend

on the domicile or nationality of the tax payer. Profits arising

from a trade, business, profession or vocation, from any source33

inside or outside Nigeria, are chargeable under the Personal

Income Tax Decree 1993(as amended to date) if the taxpayer

happens to be resident in Nigeria. Once a company is

incorporated, it becomes a legal entity and is treated under

Nigerian law as an artificial person, separate and distinct from

its shareholders.

Corporate bodies are charged to tax under the Companies

Income Tax Act of 1979 (as amended to date). However, while

Nigerian companies are taxed on their worldwide income, foreign

companies are liable only as regards the portion of their

profits, which is attributable to business operations carried on

in Nigeria. In addition to the company’s income tax, all

incorporated companies are required to pay 2% of their assessable

profit into an Education Tax Fund in compliance with the

Education Tax Act 1993 (as amended to date). Where a particular

income or profit is chargeable to tax in Nigeria as well as in

another country, there is a possibility of the taxpayer getting

double taxation relief by way of tax credit under the provisions

of the income tax statues. To this end, the Federal Government of

Nigeria has negotiated and signed income tax treaties with some34

foreign countries which are intended to boost investment. For

instance, the Industrial Development (Income Tax Relief) Act 1971

makes provisions for the grant of relief to pioneer companies.

The pioneer status is granted mainly to companies in any industry

which in the opinion of the National Council of Ministers, is

urgently needed to achieve rapid economic growth. Also, a company

which has incurred expenditure on its qualifying building and

plant equipment in approved manufacturing activity in an Export

Processing Zone is granted 100% capital allowance in any year of

assessment. This makes the cost of capital acquisition entirely

deductible in the year in which the qualifying expenditure was

incurred.

Nigeria ranks among the major oil producing countries of the

world and much of its public revenue is generated from the sale

of crude oil and natural gas. All petroleum resources belong to

the federal government, hence, companies engaged in petroleum

operations are charged to tax under a special legislation, the

Petroleum Profit Tax Act 1959 (as amended to date). According to

the Act, Petroleum operation is defined as “mining or obtaining

and transportation of petroleum or chargeable oil in Nigeria by35

or on behalf of a company for its own account by any drilling,

mining, extracting or other like operations or process not

including refining at a refinery, in the course of a business

carried on by the company engaged in such operations and all

operations incidental thereto any of or any disposal of

chargeable oil by or on behalf of the company”. The effect of the

Act is however varied by a Memorandum of Understanding (MOU)

between the oil producing companies and the Federal Government of

Nigeria. With this understanding, any profit which is charged to

petroleum tax is exempted from companies’ income tax.

The Capital Gains Tax Act 1967 (as amended to date) charges

to tax any capital gain accrued to individuals and corporate

bodies whenever an asset is disposed.

Value Added Tax Act of 1993 (as amended to date) provided

that all purchasers of chargeable goods and services are expected

to pay 5% of the purchase price as tax, the Value Added Tax Act

is a federal statue and the tax is administered by the Federal

Inland Revenue Service (an arm of the Federal Board of Inland

Revenue) on behalf of the Federal, State and Local Governments.

36

The proceeds are shared among the three tiers of government in

accordance with a formula determine from time to time by the

Federal legislature.

Another major source of revenue for the Federal Government

is customs duty, which is payable by importers of specified

goods. This tax is charged solely by the Federal Government and

collected through the Nigeria Customs Service. Excise duty was

levied on a variety of locally produced goods until 1998 when the

tax was abolished. It was however partially reintroduced, with

effect from January 1, 1999. The applicable law for customs and

excise is the Customs and Excise Management Act 1958 (as amended

to date).

The Stamp Duties Act 1939 (as amended to date) imposes tax

on a wide range of documents and transactions. Where one of the

parties is a corporate body, the tax is paid to the Federal Board

of Inland Revenue. Others pay to the State tax authorities.

There are sundry levies and rates which local governments

are authorized to collect. Notable here is the tenement rate

payable annually on buildings situated within a particular local

37

government area. This is levied by virtue of Tenement Rate Law of

the various states. There is also a Development Levy payable at

flat rate of N100 by individuals to the State governments. When

real property is transferred, the relevant State government

imposes some charges before the Governor grants his consent in

accordance with the Land Use Act of 1978.

The Nigerian tax system features a mixture of direct and

indirect taxes. All individuals, groups and corporate bodies that

earned income, profits or gains, are affected, except for

tenement rates payable on buildings, there is no tax on the

ownership of capital assets. Capital gains tax is charged only

when assets are disposed off at a profit. Virtually all the major

taxes are within the exclusive legislative jurisdiction of the

Federal Government, but the power to collect is often delegated

to the States. The usual pattern is that federal authorities

collect taxes from corporate bodies while States are allowed to

collect from individuals and unincorporated groups. Even though

local government authorities do not have substantive legislative

powers, they charge and collect such rates and levies as may be

authorized by statues of the relevant State government.38

Individual Tax

Personal Income Tax (PIT) is a tax that is imposed on

individuals who are either in employment or are running their own

small businesses under a business name or partnership. Though

collection of Personal Income Tax is a federal responsibility,

this tax is generally collected by state governments from those

that are resident in their various states, regardless of whether

they are federal, state, local government, or private sector

workers. The Federal Inland Revenue Service, however, also

collects this tax but only from residents of the Federal Capital

Territory Abuja as well as what may be described as highly mobile

federal workers – staff of the Ministry of Foreign Affairs and

other Nigerians and foreigners outside the country but earning

income in Nigeria (non-residents), expatriate workers resident in

Nigeria, Police Officers, and Military Officers. Civilians

working in Police and Military formations, however, pay to their

respective States of residence.

The current law guiding the taxation of personal incomes is

the Personal Income Tax Act (Cap P8 LFN 2004). Under the law,

39

Federal and States’ tax boards are empowered to identify persons

living in or earning income from Nigeria who are required to pay

tax, and to assess incomes and tax their incomes using specific

guidelines and rules. This law also guides the tax official in

identifying the residence of potential taxpayers, as well as the

sources and origins of their incomes for the purpose of taxing

the income.

Forms of Personal Income TaxThere are two forms of taxes that are administered under the Act.

They are:

(a) Pay-As-You-Earn (PAYE) that is, taxes from employment, and

(b) Taxes from self employed persons.

Collection of Personal Income TaxEvery individual who earns income in Nigeria either from

employment or from doing a business is subject to tax under the

Personal Income Tax Act.

(a) State Boards of Internal Revenue collect taxes of

(1) individuals in their various states of residence

(2) Body of individuals such as communities, families that run

a business

40

(3) Business names and partnerships;

(4) Executors of estates of deceased persons and trustees of

trusts.

(b) Federal Inland Revenue Service also collects Personal Income

Taxes of

(1) Persons employed in the Nigerian Army, the Nigerian Navy,

the Nigerian Air Force and the Nigerian Police other than in a

civilian capacity;

(2) Officers of the Nigerian Foreign Service;

(3) Non - residents who derive income or profit from Nigeria.

Exemption from Personal Income Tax

The law exempts the following incomes from tax:

(1) Official emoluments of the President, Vice President, State

Governors and Deputy Governors.

(2) Income of any Trade Union registered under the Trade Union

Act, provided such income is not derived from a trade or business

carried on by such Trade Union;

41

(3) Income of any Statutory or registered Friendly Society in

so far as such income is not derived from a trade or business

carried on by such Society; and

(4) Income and profits of Cooperative Societies.

Part of a person’s income subjected to Personal Income

Tax

Tax is calculated for each year of assessment on the aggregate

amounts of the income of every taxable person, for the year. The

following incomes are subject to tax under the law:

(1) Gains or profits from any trade, business, profession or

vocation for whatever period of time it may have been carried on

by the taxable person;

(2) Dividends, interests or discounts

(3) Any pension, charge or annuity

(4) The gains or profits including any premiums arising from a

right granted to any other person for the use or occupation of

any property

42

Expenses deductable before payment of Personal Income

Tax

In calculating income tax, the law allows deduction of all

expenses and outgoings from emoluments of the fiscal year in

which they are incurred, on the condition that they are:

(1) incurred in the production of income, that is, the

performance of duties and

(2) “wholly, exclusively, necessarily and reasonably” so

incurred

Allowable and Disallowed Expenses

The law allows certain expenses but disallows others. Expenses

specifically allowed under the law in calculating income tax

include:

(1) Interest paid on borrowed money employed as capital in

acquiring the income;

(2) Rent and premiums in respect of land and buildings occupied

for the purposes of acquiring profits;

(3) Expenditure on repairs of premises, plant, machinery and

fixtures and for the renewal, repair or alteration of such items

43

used in acquiring income;

(4) Bad and doubtful debts, any recoveries being treated as

income when received;

A list of disallowed trading expenses include: -

(1) Domestic or private expenses;

(2) Capital withdrawn from a trade, business, profession or

vocation and any expenditure of a capital nature;

(3) Any loss or expense recoverable under an insurance or

contract of indemnity

(4) Taxes on income or profits levied in Nigeria or elsewhere

except as provided in s.13 of the PITD.

(5) The depreciation of any asset.

Reliefs and Allowances available under Personal Income

Tax

With effect from 1 January 1999, the following reliefs and

allowances were incorporated in the law.

(1) Tax Free Earned Income: Annual income of N 30,000 and below

44

is exempted from tax, although a minimum tax of 0.5% will be

charged.

(2) Tax Free Allowances: The following allowances which have

been granted under the recent salary reviews will be tax exempt

subject to the following limitations:

Allowable Allowances  Upper limit of Tax Exemption (N)

(1) Rent subsidy/Allowance N100,000 Per annum

(2) Transport Allowance N15,000 Per annum

(3) Meal subsidy/Allowance N5,000 Per annum

(4) Utility Allowance N10,000 Per annum

(5) Entertainment Allowance N6,000 Per annum

(6) Leave Grant 10% of annual basic salary

(7) Personal Allowances and Reliefs;

(a) Personal Allowance: N5, 000 plus 20% of earned income

(b) Children Allowance: - N2, 500 per child up to maximum of

four children.

(c) Dependent Relative Allowance: N2, 000 subject to a limit of

two dependants

(d) Life Assurance Relief: - Actual premium paid.

45

Personal Income Tax Rate Structure as at 1st January

1998

Taxable Income (N)  Rate (% )

First  20, 000  5

Next 20, 000  10

Next  40, 000  15

Next  40, 000  20

Over  120, 000  25

How to pay Personal Income Tax

The Personal Income Tax law requires a taxable person to file the

returns of income or a declaration of his annual income or

remuneration for the current year with the relevant Tax Authority

where he is resident. For each year of assessment, he is required

to file a return of income in the prescribed form and containing

necessary information, with the relevant Tax authority where the

46

taxable person is deemed to be resident. This return is to be

accompanied by a true and correct statement in writing

containing;

(1) the amount of income from every source during the year

preceding the year of assessment,

(2) such particulars as may be required for the purpose of the

Act with respect to any such income, allowances, reliefs,

deductions and so on.

(3) A declaration by him or on his behalf that the return

contains a true and correct statement of the income disclosed on

the form, in accordance with the provisions of the Act.

Where to Pay Personal Income Tax (Federal Inland

Revenue Service jurisdiction)

The Federal Inland Revenue Service has jurisdiction over the

taxation of all individuals in employment including self-employed

persons and enterprises resident in Federal Capital Territory –

Abuja. Accordingly, all taxable persons, self employed and

enterprises in the Federal Capital Territory are obliged to file

47

annual Personal Income Tax and Pay As You Earn returns with the

Federal Inland Revenue Service at any of the designated tax

offices located within Abuja – Federal Capital Territory based on

the approved areas of coverage.

The 1998-2005 budgets of the Federal Government of Nigeria did

very little in terms of new tax and investment incentives to

corporate investors except for the fact that the table of

personal income tax rates for individuals was increased with a

minimum rate of 5% on the first Ten Thousand Naira in 2003. As

can be seen, taxation has continuously assumed a growing

importance in Nigeria.

2.2 Review of Theoretical Literature.

2.2.1 The Informal Sector - Theoretical background.

There are studies that confirm the persistence and growing

tendency of informality in many Latin American countries and

other developing countries. (ILO, 1999, Gray, 1998). Scholars

have developed different theorisations on the existence of

informality in Latin America and other developing countries.

These include modernization, dependency, neo- liberalism, and

48

structuralism. Some of the theoretical studies on informal sector

from both the developed and less developed countries were

reviewed in this section and the informal sector in Nigeria.

2.2.2 Modernisation

Rostow, 1960 in his analysis of the Stages of Economic

Growth proposed modernization approach to national development.

He characterized the underdevelopment of the Third World largely

as a “social problem” internal to and caused by the backward

socio-economic systems of individual countries. Walton, 1981, in

his own view said that the policy prescription for the informal

sector was to acquire “modern” values geared toward achievement,

‘modern” legal institutions and political systems, and “modern”

capitalist economies. In most cases, the “modern” was understood

as being synonymous with western values, institutions, and market

economies. In essence, the problem of underdevelopment (and by

extension, informality) was not one of capitalist exploitation

and extraction (as argued successively by neo- Marxist,

dependency, and world-systems theorists) but that these countries

49

had not yet been sufficiently incorporated into the modern world

or the international economy.

Proponents of modernization theory saw the informal sector

as a remnant of traditional, pre-capitalist modes of production

and subsistence strategies common to isolated rural peoples.

Informals were trapped outside the modern economy because they

lacked the proper education, skills, and value orientations. The

language used to describe the growing informals or excess labour

includes “marginality,’ “abnormally swollen,” “over distended

tertiary sector” and “bazaar types” (Moser, 1978)

In line with this patronizing prescription for national

development, the prescription by modernists connotes the idea

that urban surpluses would eventually disappear with the rise of

industrialization. That capitalist manipulate the reserve army

confronting workers in the formal sector with the replacement by

cheaper labour in the informal labour market (manipulation).

Informality is seen as a quasi-evolutionary process, where the

informal activities will conduct its actors to the formal sector.

Ironically, rather than manipulating and absorbing the reserve

army, evidences around the world indicates that the informal

50

economy has persisted despite the predictions that formal sector

will eventually absorbed them.

International Labour Organization (1972) and Hart, (1973)

rejected the Modernization theory and see informal economy as a

‘different way of doing thing’ rather than a strategy to

manipulate the reserve army in achieving growth and development.

However, the weakness of modernization theory was that

informal sector was not seen as an area of economic growth or

dynamism, nor was it characterized as a reservoir of

entrepreneurial training and talent. It was seen as a problem to

be solved and not a development strategy to be harnessed and

promoted.

2.2.3. Dependency

It was Keith Hart’s pioneering work among informal in Ghana

1973, combined with studies of informality in Kenya published by

the International Labour Organization ILO 1972 that crystallized

the phenomenon of unregulated economic activity into the term

“informal sector.”. Hart’s contribution had such a broad and

original impact because he focused on the complex, organized, and

dynamic income generating activities of informal enterprises. In

51

effect, he found that informal activities were not a mere

extension of traditional subsistence strategies and that

participants in these unregulated activities were not universally

condemned to poverty and marginality (Hart, 1973; Portes, 1981).

However, other scholars working within the dependency

tradition have all too often made the mistake of characterizing

informal workers as universally poor and emphasized the sector’s

supposed marginal position vis-à-vis the modern capitalist sector

(Schauffler, 1993). Furthermore, in place of developing a

systematic definition of what constituted informality,

practitioners of the dependency approach (Tokman, 1978; PREALC,

1978) often simply described the many common characteristics of

enterprises in the sector. Such as: little capital, low

technology and production, little profits, utilization of unpaid

family labour, easy entry, low efficiency and competition.

Furthermore, the dependency approach saw the goal of informal

operations as mere survival, not profit maximization. Informal

firms were often characterized as taking advantage of their

ability to avoid taxes and regulations and exploiting niche areas

overlooked by larger and less flexible firms.

52

The weakness of dependency theory was that it saw the

informal labour arrangement as taking place largely outside of

the exploitative formal relations of production. Thus, the

informal sector was viewed largely with suspicion as a mere

transposition of the rural subsistence sector into the urban

environment

2.2.4. Neo-liberalism

Peruvian economist Hernando De Soto caused a paradigm shift

of sorts when he published his treatise on Latin America’s

informal sector (Henken, 2005). Neo liberalism is an ideology

based on economic liberalism. The ideology favours economic

policies that minimize the role of the state and maximize the

private business sector (Wikipedia, 2010). Neo Liberalism seeks

to transfer control of the economy from public to the private

sector under the belief that it will produce a more efficient

government and improve the economic health of the nation.

Hernando De Soto (1989) asserts that the informal sector is a

response to excessive state regulations. He subscribes to the

notion that the informal sector is comprised of ‘plucky’ micro-

53

entrepreneurs who choose to operate informally in order to avoid

the costs, time and effort of formal registration. He noted that

micro-entrepreneurs would continue to produce informally so long

as government procedures are cumbersome and costly in terms

bureaucratic red-tapism, lack of property rights, difficult

accessibility to productive resources like finance and

technology. In his view, unreasonable government rules and

regulations are stifling private enterprise.

More recently, De Soto championed property rights as a means

of converting the informally held property of informal

entrepreneurs into real capital (De Soto 2000). De Soto and his

followers eagerly champion those who generate income for

themselves and their families in the informal sector as the ‘real

revolutionaries’, who heroically stand up to the tyranny of

excessive state regulations, and proclaim that these informal

workers are the real seeds of the free market (deregulatory)

doctrine.

De Soto can be credited with turning the informality debate

on its head and bringing it out of the academy into public view.

De Soto argues that Marx himself would be surprised to find that,

54

“In developing countries much of the teeming masses do not

consist of oppressed legal proletarians but of oppressed extra

legal small entrepreneurs with a sizeable amount of assets” De

Soto, (2000) advocates transforming the “class struggle into a

struggle for popular initiative and entrepreneurship”. He argues

that the masses have united in a revolutionary front not as

proletarians against capitalist exploitation, but as extra-legal,

micro-entrepreneurs against a bureaucratic, state-directed

economy that excludes them from becoming full capitalists

themselves. Locked out of formal jobs and denied formal, legal

title to their property, they proceeded to create their own

micro-enterprises and institute their own set of occupational-

specific extra-legal norms and regulations. He makes grand claims

that the informal sector has the potential not only to create

wealth, reduce costs, and democratize politics, but also to push

out and replace the first economy. Thus, in comparison to other

scholars who see informal economies of growth as exceptional, de

Soto contends that the informal sector is filled with

revolutionary potential.

55

Critics point out that although the majority of policymakers

for developing countries, i.e. the World Bank and IMF, subscribe

to this perspective, they offer neither practical solutions on

how to incorporate „the other path_ into mainstream development

nor do they have evidence which proves that the informal economy

can overcome the problems of a weak government apparatus under

market liberalization (Olarte, 2001).

In the context of global economic crises and restructuring,

neoliberal economic ideologies acknowledged the informal economy

and encouraged conditionality on aid to developing countries. The

essence was to promote formal employment by promulgating state

deregulation, free-market development, and curbing social

expenditure (Portes, 1997). Under the period of globalization,

the concept of informal economy gained new meanings and currency

with poverty reduction strategies and its attendant’s

consequences.

However, despite the popularity of neo- liberals’ ideology

especially among the policy makers, the ideology came under

different attacks. Challenging the neo- liberalism theory were

different scholars, for instance, in studies carried out by

56

Olmedo et al, (2009) in Argentina, Henkel, (2005) in Cuba,

Aladekomo, (2004) in Nigeria, findings from these studies show

that one significant consequence of the new global restructuring

outside the core areas of the world economy has been the process

of social exclusion. The Structural Adjustment Programmes in

Argentina led to the erosion of much of the social contract,

collective responsibility, and welfare state ‘safety net’

programs. Thus, millions of people in the global South who had

hitherto depended on state provisions now rely on their own

initiative to survive. Furthermore, deregulation of prices of

necessities, like housing costs, rent, and utilities jeopardizes

the security of tenure of poor and working-class people,

subjecting them to the vagaries of market forces and the risk of

joblessness and homelessness. Reduction of state spending on

social programmes also meant reduced access to decent public

education, health care, urban infrastructural development, and

state-subsidized housing.

Meagher, et al, (1998) also argue that the drive for

privatization and commercialization of public enterprises in

Nigeria and other African countries resulted in massive layoffs

57

of workers without a clear prospect of boosting economic growth

and creating alternative, viable jobs. With the prospects for

finding work in the formal labour market declining, retrenched

workers have turned to all sorts of informal activities and

relationships in order to make ends meet. Thus, rather than the

informal sector playing its previous supplementary role in the

provision of employment and welfare, it is now a primary medium

for sustaining the livelihoods of millions of who had been

retrenched from their jobs or whose income is not sufficient to

support basic needs

This scenario has led to the questioning of neo- liberalism

ideology on informal economy. It is evident that the state and

the urban –based large-scale formal sector cannot generate enough

jobs for the present and future job seekers. Weiss (1987) argues

that the necessary conditions for the development of informality

are not only provided by the features of an industry or economic

sector, but also by specific socio-economic features of a

society. Such features as a dispersion of small-scale operators,

a marginalized labour source (usually women, youth or vulnerable

ethnic communities) and a viable system of social networks-all

58

vital to the development of an active informal sector –

informality does not simply appear with the advent of crisis.

2.2.5 Structuralism

Structuralists insist that informality is not simply the

result of excess labour supply, or over-regulation. Instead, the

central element of the structuralist approach is its insistence

that informality is in essence an alternate form of labour

utilization (and often exploitation) by capital. Put differently,

Maloney (2000) succinctly stated that informal labour relations

(like informal workers) are not “just there” by some accident or

flaw in capitalist development. Instead, these relations (and

workers) are actively “informalized” by capital under the logic

of peripheral capitalist accumulation

Arguing along the same line was Rakowski, 1994; he argued

that the “novelty” of the informal sector is largely illusory.

What is new in the production process is not informality, but

formal labour relations themselves. Labour relations in the late

19th century were characterized by paltry or nonexistent

protections and benefits for workers. Informality only came into

59

existence as a distinct category in the production process after

its antithesis, the formal, relatively protected worker, was

created through years of struggle by labour unions. What is a

“new” phenomenon is the active recreation and intensive

utilization of informal labour relations by formal capitalist

firms. This is identified by structuralists as a novel strategy

in the economic restructuring of global capitalism in reaction to

the structural crisis that began in the early 1970s.

The structuralist made two main contributions to the

informal economy discourse. First, the informal economy’s

function according to Castells et al, (1989) is to support

capitalist structure, which is supported by globalization, to

maintain market competitiveness as producers strive to reduce

production costs, especially wages. For example, he stated that

research on Guatemala shows how several US clothing companies

provide local contractors with cloth, design patterns and

occasionally with loans, but with no social security. These

informal contractors use the manual labour of Indian women who

sew for wages, which are significantly below the market price.

Similar case studies on different industrial sectors reveal that

60

subcontracted informal activities are concealed in official

formal sector documents.

A second major contribution by the structuralists, Roberts

(1991), Centeno et al, (2003) is a multiplicity of reasons why

the informal economy is growing and crucial for development. The

informal economy retains a higher number of workers than the

formal one because individual’s utility of income is higher in

the informal economy and there is a large market of cheaply

produced goods and services. Capitalists also employ informal

labour to reduce costs when compared to employing formal labour.

With the integration of the developing countries into the

outsourcing in the informal economy creates dynamic sources for

informal producers to take advantage of growing demand of their

labour (e.g., in the garments, footwear, and toy industries).

A critical shortcoming of this theory is that while

industrial subcontracting is a central feature of informal

activity in Latin America cities, it is a comparatively

insignificant feature of informal activity in developing

countries (Aeroe, 1992). The common feature in African

informality is what Capeechi refers to as the ‘subsistence’

61

informal economy in which economic actors are occupied on

informal means of income generation (Capecchi, 1989).

2.3 Review of Empirical Literature.

2.3.1. Studies in Developed Countries.

The early studies on the informal sector (1960-1970)

considered it to be a separate economic domain. The concepts of a

dual economy and social marginality were mentioned as early as

1953 by the ‘colonial economist’ Boeke. He describes the dual

economy as consisting of an urban market economy (of a capitalist

nature) on one hand and a rural subsistence economy (static

agricultural system of production) on the other. This theory was

later criticized for its descriptive rather than explanatory

nature, the acceptance of economic dualism, and the assumed

62

autonomous relationship between the formal and informal sectors

as opposed to one of domination and subordination (Harding and

Jenkins, 1989).

Research in subsequent years showed the importance of the

informal sector and discussed its integration into the national

economy. The mainstream theory in this period considered

informality to be a reality, characterized by ‘its own right,

with its own rules, conditions and characteristic modes of

representation’ (Harding and Jenkins, 1989). Supporters of this

theory reject the notions of economic dualism and social

marginality. They do not see the informal sector as a set of

survival activities performed in a marginal society. However,

Harding and Jenkins concluded that the informal sector is

dependent on the formal sector. Their theory is characterised by

the recognition of the dependency of the informal sector on the

formal sector. This dependence could be either complementary

(e.g., via sub-contracting activities) or competitive (e.g.,

unregistered business activities where labour is cheaper and

prices are lower). This theory has profound explanatory power and

recognised another relationship between the formal and informal63

sectors. This is a linking relationship where the informal sector

is dependent on the formal sector.

In a parallel way, two important theoretical approaches

(mainly as subordinates of the latter theory) emerged: the so-

called ‘production-rationale’ approach and ‘illegality based’

approach. The first approach emphasizes the influence of the

State in the economic cycle and distribution of resources.

Conversely, the second approach supports the traditional

economics (laissez-faire), where there is no need for State

regulation or intervention. As a consequence, ‘the production-

rationale’ approach favors State regulation of the informal

sector in order to integrate it into the formal economy. The

‘illegality-based’ approach, on the other hand, argues that the

informal sector should be left free, and let the market forces

rule. Despite their positive developments, Guerguil (1988) has

criticized them because ‘neither of the two approaches performs

the dual function: to establish an analytical framework and a

measurable indicator’.

Research went further on developing several new approaches

within the framework of the mainstream theory. These typically

64

try to explain certain aspects of the informal sector. An example

is the ‘tax evasion’ approach mainly analyzed by Feige and Tanzi.

According to Tanzi (1982), the main determinants of tax evasion

are: (1) the perceived fairness of tax laws; (2) the attitude of

tax-payers vis-à-vis their government; (3) their basic religious

and cultural characteristics; (4) the severity of penalties

imposed on the tax evaders that are apprehended; (5) the facility

with which taxes can be evaded; and, (6) the monetary rewards to

the taxpayers associated with not paying taxes.

There is a causality correlation between the ‘tax evasion’

approach and the one which deals with the reliability of the

nation’s information system. Feige (1989) contemplates a split up

of the unobserved economy in two elements: a monetary sector

which utilizes money as a medium of exchange and a non-monetary

sector in which the exchange occurs through barter or its goods

and services are self-consumed. Due to the unreported income (tax

evasion) from both these sectors, the national accounting system

is misleading. Consequently, Alford and Feige (1989) suggest that

‘information must be treated as an endogenous variable in social

systems whenever there exist behavioral incentives and mechanisms

65

to manipulate the information system’. They argue that the

apparent economic stagnation may partly result from the

statistical illusion or distortion (due to the exclusion of the

informal economy in the conventional measures of national

income). Conversely, some other researchers like O’Higgins (1989)

and Broesterhuizen (1989) claim that the informal economy is

greatest during stagnation periods.

All these ideas have been extensively discussed by Frey

(1989), who refers back to two theories about the informal

economy, launched for the first time in earlier studies. The

first theory is the theory of optimal taxation or the social-

welfare-maximizing approach. Its pioneers are Ramsay (1927),

Allingham and Sandmo (1972), Srinivasan (1973), Singh (1973) and

Kolm (1973). This theory is used to determine that tax rate which

maximizes economic well-being as described by a social welfare

function, taking into account the effect taxes have on the supply

of labor and on the production of goods as well as on the

distribution of income. The second theory is the economics of

crime as it is called by Becker (1976), who studies the

possibilities for controlling illegitimate activities, looking

66

both at the supply of and demand for (i.e., the partial neglect

of protecting oneself against) offenses. These two approaches are

primarily concerned with the individual behavior regarding taxes

and illegal activities, through which, the informal economy (tax

evasion and illegal) is analyzed.

Frey’s main criticism about the social-welfare-maximizing

approach is that ‘government is not an exogenous actor in the

political-economic system free to pursue the social good but is

dependent on other decision makers, particularly on the support

of voters and interest groups’. Alternatively, he suggests

another approach: the theory of democratic economic policy.

According to this theory, ‘in a system of decision makers each of

which pursues his own utility, the size of the official as well

as that of the unobserved economy is the unintended outcome of

their actions’. In other words, the informal sector activities

are the consequence of self-interested decision makers.

In his theoretical approach, Renooy (1990) models the

informal sector as a simple cyclical phenomenon in which subjects

undertake activities (work), which may or may not lead to

transactions, from which payments may or may not result, which

67

produce income, which again may be used in various ways. This

approach yields several distinct features of the informal sector

compared to the formal economy: (1) formal regulations and rules

are absent; (2) there is often a higher degree of flexibility

than in the formal labour market; (3) it is not the organization

but the form of payment which differs compared to the formal

economy; (4) these activities take place both within and outside

formal contexts and they strongly interact with each-other; (5)

there is no complete information; (6) this sector is highly

fragmentary; (7) there is a combination of various (informal)

activities because sometimes one activity alone does not produce

sufficient income; (8) there is a low entrance threshold to the

informal sector; (9) the price of goods and services in this

economy is lower than in the formal one; (10) there is a lower

capital intensity; (11) there is a lower level of productivity;

(12) the informal sector relies predominantly on social/family

networks, where subcontracting is its connection with the formal

economy; and (13) sometimes there is an absence of channels of

access to the formal activities.

68

An important point of dispute is the effect that the formal

economy has on the informal sector. In particular, the question

is whether this effect is pro- or anti-cyclical. In 1991, Lubell

suggested that both effects are possible. Whenever the formal

economy contracts, individuals become more involved in informal

sector activities for lack of alternative ways of earning a

living (anti-cyclical). On the other hand, whenever the formal

economy expands, the direct and indirect demand for goods and

services produced in the informal sector will increase its size.

Greenfield (1993) sees the development of the two sectors in a

parallel way only. However, he reports that O’Higgins (1989)

considers the opposite.

As for the effect of the informal sector on the formal

economy, Schneider (1998) reports that in Germany and Austria at

least two-thirds of the income earned in the ‘shadow economy’ is

immediately spent in the official economy resulting in

considerable (positive) stimulating effect on the official

economy. In a study for Belgium, Adam and Ginsburgh (1985) also

find a positive relationship between the informal sector and the

formal one.

69

Recently, there has been an increasing contribution in this

field from institutional economics. Institutional economists

focus their attention on “the relationship between the ‘rules of

the game’ and economic development, considering that institutions

are not neutral, but they can substantially stimulate or hinder

the process of economic and overall development” (Feige, 1990:

990). Institutions consist of formal institutions (i.e.,

political and economic rules) and informal institutions (i.e.,

social norms and traditions). “Changing merely the formal rules

will produce the desired results only when the informal norms are

complementary to that rule change, and enforcement is either

perfect or at least consistent with the expectations of those

altering the rules” (North, 1997: 19). In addition, as Feige

(1997) notes, a clash between formal and informal institutions

will yield non-compliant behaviours.

2.3.2. Motives and Causes of Informalisation in Developed Countries.

70

The existence of an informal economy and its persistence

over time has been explained by a variety of reasons, motives and

related causes. Public attention was drawn to the underground

economy during World War II when higher tax rates, price

controls, and rationing programs provided incentives for firms

and individuals to participate in various ‘black market’

activities (Feige, 1989). The study of these elements is

considered to be very important, in order to understand this

phenomenon more in depth and to reach a scientific conclusion

regarding its overall significance.

The majority of analysts agree that economic recession is

one of the foremost causes of the development and tenacity of the

informal sector. As a consequence of stagnation, unemployment and

depreciation of capital stimulate participation in informal

activities. Some of the primary reasons to participate in the

underground economy mentioned in the early literature are: (1) to

evade taxes; (2) to avoid losing government benefits; (3) to

circumvent regulations and licensing requirements; (4) a reaction

by both firms and individual workers to labour unions; and (5)

the impact of international competition.

71

In broader terms, the motives for participation can be

economic and noneconomic. Economic reasons are related to

unemployment and an inflexible formal labour market; a declining

real price of capital; and the high cost of formal production.

Non-economic motives are related to a greater flexibility and

greater satisfaction in work; a complete use of their

professional qualifications; and the increased leisure time. A

very important element, motivating participation in the informal

sector, seems to be the role of the state (Gershuny, 1979). These

state-related variables and other motives are discussed by Renooy

(1990) from the perspective of behavioural economics. He argues

that there are two groups of factors which determine the decision

to become active in the informal sector, more specifically, the

‘structural’ and ‘opportunity’ factors. The structural factors

consist of financial pressure; socio-psychological pressure; and

institutional constraints. The opportunity factors consist of

individual background: skills, education, contacts and living

situation, or non-individual components: environment, cultural

tradition, values and standards, and geographical factors. The

author suggests that these ‘opportunity’ factors explain why

72

different sorts of informal economies exist. The individual free

choice affects the decision on tax payments based on a

combination of inadequate information and a lack of any trust in

the way taxes are spent. In an atmosphere in which the government

loses the trust of the population and people no longer feel that

government supports them, a step into the twilight economy will

be taken much more easily.

Many authors focus on tax evasion, as one aspect of the

informal economy. Various studies argue that evasion of taxes is

mainly caused by high tax rates and low audit probabilities

(Clotfelter, 1983; Friedland et al., 1978; Baldry, 1987). Tanzi

(1982) summarizes the main determinants of tax evasion as

follows: (1) the perceived fairness of tax laws; (2) the attitude

of taxpayers towards their government; (3) their basic religious

and cultural characteristics; (4) the expected severity of

penalties imposed on the tax evaders; and (5) the ease of evading

taxes. In addition, Schneider and Neck (1993) present empirical

evidence for the case of the Austrian tax reform of 1989, which

says that a decreasing complexity of the tax system can promote

the shadow economy by limiting various tax exemptions and

73

reductions. Contrary to this evidence, Thieβen (2003) finds that

the Ukrainian shadow economy increases with higher tax complexity

(i.e., the number of taxes, the ambiguous tax laws, the number

and extent of tax exemptions). Although this contrast in findings

could refer to the institutional differences between Austria (a

developed country) and Ukraine (a less developed country),

Thieβen argues that “the implications of this study may go beyond

the case of Ukraine because they suggest that the effective

regulatory burden and tax system complexity appear to be

quantitatively as important or even more important than the real

monetary burden of taxes and social security contributions”

(Thieβen, 2003: 309).

Besides the evasion of taxes, another frequently mentioned

reason for participation in the informal sector is the

governmental over-regulation of the market sector, not only via

taxes but also through, for example, legislation related to

labour conditions, quality regulations, and production limits.

This over-regulation increases the transaction costs of

participation in the formal economy, so that it becomes

relatively more appealing to switch to the informal sector.

74

Johnson et al. (1997 and 1998b) find empirical evidence that more

regulation indeed leads to a larger informal sector. Other

motives related to the labour market are the increased number of

unemployed people, the reduction in working hours, early

retirements, and supportive social welfare systems (Schneider and

Enste, 2000). Each of them provides incentives to individuals to

search for new job opportunities, which are mostly available in

the informal sector. However, in a recent study, (Schneider and

Mummert 2002) show that these motives do not always explain the

individual participation in informal activities. Comparing the

level of shadow economy in East and West Germany, they argue that

social networks and institutional structures appear to be even

more important.

2.3.3 Studies in Developing and Transition Countries.

The early empirical literature on the informal sector has

mostly focused on the Third World countries and has, wittingly or

not, assumed that as a social type such sectors are not to be

expected in advanced industrialized countries (Feige 1979;

Gutmann 1979; Tanzi 1982). However, research has shown that the

75

informal sector not only exists in the developed countries, but

it is often a very problematic phenomenon. As a matter of fact,

the theories for developed countries, mentioned previously, hold

to a large extent, for less developed countries as well.

Early empirical studies of the informal sector in developing

countries consider the participants of informal activities as a

‘reserve army’ of labour, who mainly survive at low subsistence

levels. For example, Swaminathan (1991) recognizes that the

primary reason to start with research on the informal sector in

developing countries was related to the problems of mass poverty

and unemployment.

As mentioned above, the informal sector was present even in

centrally planned economies. Theories describing informal

activities in these economies are expected to have particular

features. However, although the economic regime is substantially

different than in Western economies, the informal sector acts as

a safety valve for political discontent in planned economies as

well. In addition, while in the West individuals earn incomes

that are taxed, in socialist economies the resources are withheld

at the outset by the overall imposition of scarcity as dictated

76

by the central plan (Feige, 1989). Grossman (1982) has

contributed significantly in providing evidence about the

informal activities in these economies, especially for the USSR.

His research has shown the following: (a) the demand for informal

income and the supply of informal goods and services inevitably

reinforced each other, and (b) exchange of favours in the form of

access to goods or services was a salient feature of the Soviet

informal sector. More specifically, some forms of informalisation

were: private lucrative use of socialist property; theft from the

state and cooperatives; bribe-taking by officials; and bribe-

giving, in money or natural. He explains this phenomenon as a

kind of cyclical reasoning, which starts with the state

compensating for its loss through theft by paying lower wages.

The individual in turn will consider this as an implicit

justification to steal from the state especially in a situation

of pervasive goods shortages and the circle closes. He concludes

that these characteristics might have been similar in other

communist countries of Eastern Europe. Further theoretical and

empirical evidence about the informal sector in former socialist

countries are given by Kornai (1993), Schneider (1997) and Lacko

77

(1998). They observe that the informal sector activities in these

countries, especially in the last period before transition, were

much more widespread than in an ‘average’ market economy. This

contradicts the common view that these countries experienced a

relatively small informal sector, especially compared to

developed countries.

Another typical feature of the informal sector in centrally

planned economies is the existence of both the ‘second’ and the

‘third’ economies (Ellman, 1989). The ‘second’ economy consisted

of hidden transactions of goods or services that were privately

produced by individuals. The ‘third’ economy consisted of hidden

activities by or within large enterprises, which were normally

tolerated by the party officials in order to achieve the goals of

the central plan.

Long after the early studies of centrally planned economies

(e.g., by Grossman, 1982), the informal activities were again a

subject of study, but this time during the transition period

these countries were going through. In the literature, the

following characteristics appear to be relatively specific to the

informal sector in transition countries.

78

At the start of transition, the ‘second’ economy was

legalized (i.e., production and exchange of private goods),

although this does not exclude the possibility that some of the

new private enterprises are operating in the informal sector (see

below). The ‘third’ economy is unique to these countries and has

remained the same: informal activities still take place within

large enterprises (Dolgopiatova, 1998).

Considering the pro- or anti-cyclical relationship between

the formal and informal sector, Fortuna and Prates (1989) observe

that in developing countries the prospering period of export of

manufactures entailed high levels of benefit for entrepreneurs,

use of advanced technology, and growth in the scale of

production. In addition, it fostered a process of informalisation

disguised as small independent entrepreneurship. Their

observation indicates a pro-cyclical relationship. In transition

countries, based on an interesting research about Hungary

(covering the socialist as well as the transition period, 1980-

1993), Arvay and Vertes (1995) conclude the following. There is a

pro-cyclical relationship during the socialist period (before

1989) and an anti-cyclical relationship during the transition

79

period (1989-1993). Johnson et al. (1999) argue in favor of the

anti-cyclical relationship, because informal activities cannot

make use of market-supporting institutions like courts of law and

this may discourage investments and economic growth. This has

occurred in Peru, as reported by De Soto (1989). Kaufmann and

Kaliberda (1996) do not appear to be optimistic either. They

claim that even if it is large, the informal sector is mostly a

survival sector where the short-term turnover dominates the long

term one, and where large scale and vital investments do not take

place.

Some researchers argue that the informal sector in

transition countries is characterized by almost zero entry and

exit costs (Kaufmann and Kaliberda, 1996).

This argument, however, has been criticized because research

has shown that the informal sector does have such costs. The

extensive use of barter is another typical element in some of

these countries, especially Russia. Ellman (2000) summarizes

several reasons for the growth of barter, such as

criminalisation, tax evasion, a failed privatization strategy, a

survival strategy for insolvent and loss-making firms, suppressed

80

inflation or contagion, or some combination of these factors. In

addition, the new small formal sector businesses in some of these

countries hardly show any trend to expand and grow (Gaddy and

Ickes, 1998). Some of the reasons put forward are: to avoid the

attention of tax authorities and criminal organizations10 and

often to delay paying wages to the workers. Finally, some argue

that the rapid growth of the informal sector from a relatively

low base has been a notable feature of some transition economies

(Kaufmann and Kaliberda, 1996; and Commander and Tolstopiatenko,

1997). The expansion of the informal sector is also related to

the large share of public expenditure in the GDP of these

countries. This was especially the case in the early years of

transition. In addition, less developed countries face a higher

level of tax evasion due to their weakened fiscal authority,

which in turn shifts a greater burden of revenue collection to

monetary policy (Feige, 1990).

In the literature, some elements show up specifically in the

studies about transition countries. Some researchers (Kaliberda

1996, Gaddy and Ickes 1998) argue that the informal sector in

these countries is characterized by almost zero entry and exit

81

costs. This argument, however, has been criticized, because

research has shown that informal sector does have entry and exit

costs (Tolstopiatenko 1997). The increased use of barter is

another typical piece of evidence from some of these countries.

This is explained as a reaction to high inflation initially, and

later to the shortage of liquidity. In addition, the new small

businesses in some of these countries hardly show any trend to

restructure, expand and grow (e.g. in Russia) (Gaddy and Ickes

1998). Some of the reasons observed are: to avoid the attention

of tax authorities and criminal organizations; and often to delay

paying wages to the workers. Finally, some argue that the rapid

growth of an informal sector from a relatively low base has been

a notable feature of the transition economies (Tolstopiatenko

1997 and Lacko 1999).

Finally, the recent institutional approach is particularly

emphasized in the case of less developed countries, where the

incompatibility between the formal and informal institutions is

more evident than in the developed countries. Consequently, the

occurrence of informal activities in the former countries is

expected to be more dominant than in the latter. Gërxhani (2003)

82

provides empirical evidence based on a household survey in

Albania.

2.3.4 Motives and Causes of Informalisation in Developing Countries.

The majority of reasons for the existence and growth of

informal activities converge for developed and less developed

countries. There are a few specific differences, however.

Regarding developing countries, the low rate of

industrialization and productivity, and the presence of surplus

labour are listed as principal reasons why a dualistic system

arose in the cities of the third world (Breman, 1980). In

addition, it is accepted that due to the old economic mechanism

(low technology and intensive use of cheap unskilled and semi-

skilled labour) that these countries have, informal activities

emerge and grow quite rapidly. This is basically one of the

reasons why the informal sector in less developed countries is

considered to be a sector for survival.

Johnson et al. (1998a) empirically find that the high tax

and regulatory burden, the weak rule of law, and a high level of

83

corruption can explain the high level of informal activities in

some countries of Latin America. Research about the informal

sector under central planning recognizes some other basic motives

of informalisation (Grossman, 1982), such as: the presence of

common socialist property, which is broadly regarded as ‘up for

grabs’; the constant consumer shortages; the universal price

controls, physical allocation of goods, and other sorts of strict

official regulations; the outright banning of a wide range of

consumer articles and services; the bureaucratic inadequacies;

the corrupted authorities; the political dissatisfaction; and the

contrast between actual life and that predicted by the official

ideology.

Regarding transition countries, the distinctive reasons of

informalisation are mainly related to the political, economic and

social institutional causes of their transformation from

centrally planned into free market economies. They involve:

insufficient economic development (e.g., Kaufmann and Kaliberda,

1996, mention the low degree of economic liberalization and

macroeconomic instability); a high tax burden and a complicated

tax system (Thieβen, 2003); a weak and complex legal and

84

institutional framework (which is mainly due to the gap between

the destruction of old institutions and the construction of new

ones); inefficient enforcement mechanisms; a high level of

corruption and bureaucratic incompetence among the government

agents (Johnson et al., 1998a); the general lack of confidence in

state institutions; the laissez passer approach towards the informal

sector (i.e., the tolerance and insufficient control by the

government); civil wars in some of these countries; and finally,

the ‘path dependency’ (i.e., the conflict between the established

economic and social norms in the past and the reaction to a new

reality in the present).

2.4 The Informal Sector in Nigeria

For the most part, African countries are not yet market

societies, mainly because of the limited development of

capitalism which is anchored on industrialization. Also

associated with this is the fact that over 60 percent of the

population of Africa is rural, with mostly peasants engaged in

subsistence farming (see Ake, 2000:166). Most developing

economies particularly in sub-Saharan Africa are not necessarily

85

the sphere of capitalism as the urban labour market is largely

informal (Ogunrinola, 2007:74; Abumere et al., 1998). The real

economic sector in Africa in terms of the numbers involved in

urban labour market comes from the informal sector which accounts

for more than 50 percent of urban jobs and between 20-80 percent

of the labour force in most African nations (Population Reports,

2002; MacGaffey, 1988; UNDP, 1994:25). Nigeria has the largest

and arguably the most dynamic informal sector in sub-Saharan

Africa given its huge population size. Since the imposition of

SAP or economic reforms, informal activity has expanded from an

estimated 50 percent of the urban workforce in the late 1970s to

over 65 percent by the late 1980s (ILO, 1999; The Economist,

1984; Meagher and Yunusa, 1996; Sethuraman, 1981).

The high degree of informality in the Nigerian economy

emanates from the fact that the formal economy is too small

compared to the magnitude of the labour force seeking wage work

therein. And since there is no form of employment benefits from

the government in a developing nation like Nigeria, those who are

unable to secure formal employment and cannot afford to remain

openly unemployed pick up some work to do in the informal sector.86

Such works include all kinds of trading activities, street

hawking, technical services like motor vehicle repairs,

electronics and electrical repairs, barbing, welding, plumbing,

driving, manufacturing ventures like brick making, shoemaking and

tailoring; among many others (see Gafar and Umar, 2004;

Fliutman,1989).

The informal sector concept was introduced into economic

development analysis by Hart (1973) in his study of employment

opportunities in Ghana. It was brought to prominence by the

ILO/UNDP examination of employment in Kenya, where the term was

used to describe enterprises that are outside government

regulations (ILO, 1972). Such enterprises also operated outside

the incentive system offered by the government and other private

institutions. Since then, the literature on the informal sector

has grown phenomenally over the last two decades. The term

informal sector has been severally defined by scholars as there

is no consensus as to its precise description. It has been

defined by legal status, organization and control of production,

size of enterprise or production technology (see De Soto, 1989;

Feige, 1990). 87

Oni (1994) sees the informal sector in terms of its spongy

capacity to absorb those who are at any time marginalized from

gainful employment in the modern sector. Portes and Walton

(1981:87) and Fluitman (1989) see the informal sector as

encompassing “all income-producing activities outside formal

wages and social security payments”, incorporating the diversity

and heterogeneity of economic activities. In the same vein,

Portes, Castells and Benton (1989:12) refer to it as consisting

of a very specific social group made up of the unemployed,

migrants and low income wage earners who engage in production and

service activities “unregulated by the institutions of society,

in a legal and social environment in which similar activities are

regulated.”

Perhaps, the most frequently adopted definition comes from

the International Labour Organization (1972), which sees the

informal sector as an unregulated economic and financial

activities not registered in national accounts. It is

characterized by ease of entry, reliance on indigenous resources,

small scale operation, family ownership of enterprise, labour

intensive and adaptive technology, skills acquired outside the88

formal school system or training programmes, and unregulated and

uncompetitive markets. Other classifications of the sector are

many and varied. According to Abumere et al (1998) the informal

sector has been characterized as invisible, irregular, backyard,

unorganized, subterranean, hidden, unreported, unobserved,

residual and parallel.

In addition, the sector has also been represented as the

real sector (McNeill, 1993), the economy of the poor (Hemmer et

al., 1989), indigenous entrepreneurship and microenterprises

(Tokman, 1989). Some other features of the informal sector are:

small scale establishment, rudimentary, make-shift structures,

employees with little education and limited knowledge of the

formal sector amenities like bank loans and bureaucracy

(Odekunle, 2000:9). It is, therefore, easy to infer that the most

striking feature of informal sector studies is the numerous ways

in which it is used and these characterization best suit the

informal sector of Lagos, Nigeria. Bromley (1978) reckons that

the informal sector is largely ignored, rarely supported, often

unregulated and sometimes actively discouraged by government.

89

While informal economy has a long history, scholars began to

pay attention to it in the second half of the twentieth century,

first in the developing countries and later in the developed

nations. By the mid-1990s, the informal economy had emerged as an

integral component of national economies in the developing and

developed societies. Implicit in the development of the informal

sector is the conception of dualism as it relates to the urban

economies of the Third World, which is based upon one or more of

the following factors: mode of production, mode of organization

and scale of activities; organized and unorganized sectors or

simply large and small-scale activities (see Boeke, 1953;

Hirschman, 1958; Paauw et al., 1973). Other factors that have helped

to sharpen the dualism between the two sub-systems of the formal

and informal sector and brought its significance as employment

generation avenue derived from our colonial heritage, patterns of

trade, patterns of allocation of resources with an urban bias,

presence of multi-national corporations and international

transfer of technologies, (see ILO, 1972; Weeks, 1975;

Sethuraman, 1976). However, the two sectors may be distinguished

in terms of the mode of production, organization and scale of

90

activities: formal sector consisting of activities using modern

modes of production and organization comparable to the developed

world and hence are larger in scale of operation as compared to

those of the informal sector (Geertz, 1963:63).

Accordingly, the informal sector is one where free entries

to new enterprises exist; enterprises in this sector rely on

indigenous resources; they are family-owned and small scale; they

use labour intensive and adapted technology; their workers rely

on non-formal source of education and skills and finally they

operate in unregulated and competitive markets. Correspondingly,

the formal sector enterprises possess characteristics adverse to

the above-entry for new enterprises is difficult, the firms rely

frequently on overseas resources; they are generally subject to

corporate ownership and large scale operation; they use capital

intensive and often imported technology; their workers possess

education and skills acquired through formal sources and they

operate in protected markets. The formal and informal dichotomy

is probably the latest of the dualistic models to come into the

development literature, having been used by Hart (1973), but

popularized in a series of papers in the 1970s by the91

International Labour Organization (see Merrick, 1976; Tokman,

1987).

The framework presented above suggests that the informal

sector consists of small-scale units engaged in the production

and distribution of goods and services with the primary objective

of generating employment and incomes to their participants

notwithstanding the constraints on capital, both physical and

human, and know-how. The informal sector enterprises can be

interpreted as belonging to the lower end of the urban continuum

of enterprises. The informal sector units can therefore be

expected, in principle, to overcome the capital and skill

constraints over time and thus assimilate themselves with

enterprises; the extent to which they succeed in breaking such

barriers in practice is however an empirical question and depends

on a number of a factors. Viewed in this framework, the term

“small enterprise” as commonly used can be interpreted as

belonging to the middle of the continuum; it uses a mode of

production and organization similar to the formal sector

enterprise but on a relatively small scale. It is therefore

sometimes labeled as the intermediate sector. Perhaps the92

distinguishing feature between the informal sector unit and the

small enterprise is their orientation: whereas the former is

motivated primarily by employment creation, the latter is

concerned primarily with profit maximization (see Abumere et al.,

1998:5; 1978).

The concept elaborated above suggests that the informal

production units are motivated by employment generation and that

they have little capital (and skills) at their disposal. They are

relatively labour-intensive unit using simple technologies of

production due to capital constraints, access to limited

technical know-how and have low-value added per worker as

compared to the formal sector firms. To put it more plainly, the

formal sector can be described in terms of a high labour

productivity while the informal sector is characterized by low

labour productivity. Thus the bulk of the people engaged in the

informal sector are self-employed and not working for wages.

Finally, the sector can also be characterized in terms of certain

basic traits of its participants and/or opportunities and

constraints available to them. Then, it should also be noted that

the traits of individual participants (rural/urban origin), age,93

sex, ethnic background, level of education, skills and the like,

would seem to explain the differential values, attitudes,

behaviours and motivations observed in the two sub-systems.

However, the dualist conception of urban economies in most

Third World countries have been criticized for assuming that the

informal and formal sector are separate and independent, whereas,

in fact, they interact. Some scholars have argued that there is

lack of clarity by this dichotomy model on sectors which exist

outside the formal/informal sectors such as the state sector and

the executive/professional sectors (see Bromley, 1978). According

to Brombey (1978), the dichotomy is even less applicable to

households since some members work in the formal and others in

the informal sector. Besides, many of the characteristics used to

distinguish the sectors are not unique to either of them. For

instance, elements such as labour-intensive technology, reliance

on indigenous institutions and practices, and family ownership of

enterprises exit in varying degrees in both the informal and

formal sectors. Despite these criticisms, the application of the

dichotomy model in this study is very much appropriate as the use

of the term informal sector and features are concerned. This is94

significantly so as there is little doubt that the term more

accurately describes the breadth and heterogeneity of all the

activities usually classified under the two sectors. Furthermore,

the use of this pattern also enables us to retain the conceptual

link with existing studies, a link which is vital in the

comparison of findings and in policy analysis

In the literature, researchers have studied the informal

sector for different purposes. Some writers such as Kelly (1994)

have studied the informal sector because of its implications for

the macro economy. Some have studied it because of its employment

potential (Hart, 1973, Roberts, 1991) or income implications

(Amin, 1987). Others have focused on the links between it and the

formal sector (Hemmer et al., 1989) or its relevance for the new

institutional economic approach to development studies (Feige,

1990). However, this study focuses on the social cost

implications of Nigeria’s neo-liberal policy on human development

in the informal sector of Lagos State, Nigeria. This is

critically so as the informal sector has come to represent the

people’s spontaneous and creative response to the state’s

95

incapacity to satisfy the basic needs of the impoverished masses

(see De Soto, 1989: xiv-xv).

Measuring the size, employment structure and other

characteristics in the informal sector in Nigeria is not an easy

task. However, estimates suggest that the sector accounts for

between 45 percent and 60 percent of the urban labour force, up

from 25 percent in the mid 1960s (Nwaka, 1992; Okunola, 2001).

Also, the CBN/FOS/NISER (2001) nation-wide study of urban

informal sector reported that a whooping 12.14 million jobs were

generated by 8.6 million of enterprises in urban informal sector

in Nigeria. Besides, Loayza (1996) finds the size of the informal

sector to positively correlate with tax burdens, labour market

restriction and inefficient government institutions; but

negatively correlated with real per capital GDP. Similarly,

Friedman et al. (2000) found the size of the informal sector is

positively correlated with costs of bureaucracy and the level of

corruption within the country studied. The development of the

informal sector in Nigeria follows closely the general pattern of

economic/urban development in the country. Each phase in the

development of the cities and the economy has its own dynamics in96

informal sector development. British colonial rule neither

anticipated nor approved of the growth of large urban

populations. Although many port cities, river ports, rail-side

towns and administrative centres owe their growth to the

activities generated by the European presence, the colonial

officials remained oblivious to the idea of rapid urban growth

and tended to see the cities as an unfortunate by-product of

colonial activities which had to be firmly contained in order to

avoid political subversion and social disorganization.

The towns were not conceived as or promoted as centres for

industrial production, for job creation and self-sustained

growth, but rather as small enclaves for the administrative,

colonial trade and transportation. The policies and the

institutions for urban development, where they existed, were very

restrictive and myopic, especially in the critical areas of land

use control, planning, and the provision of infrastructure and

services. Planning and housing policy were used as an instrument

of segregation to ensure that the small community of Europeans

was protected in segregated high quality residential reservations

(Omuta, 1986; Stock, 1988). Sadly, the laws, codes, regulations97

and institutions designed for the small populations envisaged in

colonial cities have been inherited with little rethinking by

post-colonial administrations; and have naturally been quickly

overtaken by and overwhelmed by the process of rapid urban growth

and post-colonial administration.

The expansion of the private sector and the pursuit of

import-substitution industrialization in the years after

independence gave a boost to urban employment and urban growth in

the informal and formal sectors. In post-colonial Nigeria and

other African countries, many analysts have observed a new

process of urbanization unleashed by the masses of relatively low

income migrants, who have flocked into the cities to solve their

problems of accommodation and employment informally, and on their

own terms. The urban poor are now dominant and in most cases are

transforming the city to meet their needs, often in conflict with

official laws and plans (Mabogunje, 1992; Fapohunda, 1985).

Arising from this background, it becomes evident that the

development of the Nigerian informal sector since attaining

independence took place in an environment where the formal sector

98

was regarded as the real engine of economic growth. Activities in

the informal sector were classified variously as traditional

crafts and petty trade in the subsistence sector, or as small

scale enterprise within the formal sector, and treated as such

(Dike, 1997). No effort was, however, made to protect informal

sector operations and products from competition with imported

mass produced goods, hence the informal sector operators tended

to gravitate towards trading, service provision and

transportation.

Despite this lack of effective state support, the informal

sector continued to grow, fueled by the advent of oil boom in the

1970s, the neglect of the agricultural sector and the more

attractive climate created by rising urban wages associated with

increased opportunities in administration, construction, commerce

and services, thus resulting in high rates of rural-urban

migration. Nonetheless, the major impetus for the rapid expansion

of informal economy in Nigeria results from the deterioration of

conditions in the public and organized private sectors, the

economic recession/crisis of the late 1970s and early 1980s, and

the imposition of neo-liberal policy measures which formally99

began in 1986. Besides the rapid growth of the informal sector,

conditions in the sector have been exacerbated by the nation’s

lack of economic diversification, insufficient investment

capital, low level of technology, inadequate infrastructural base

which have limited its capital output ratio (that is the ratio of

the level of equipment or capital relative to output) to

development (see Mabogunje, 1994; Meagher, 1991b).

However, the informal sector over the years has provided the

“safety net” that accommodates the unemployed, the poor, the

unskilled, by utilizing family labour and resources to make a

living. It has also provided space for myriads of workers who

have left their previous formal sector jobs for reasons of

retrenchment and retirement. As Morgan (1989) puts it, ‘though

detailed statistics on the enterprises are hard to come by owing

to lack of extensive databases, it is clear that in many

countries their role is extremely important as contributors to

the nation’s wealth, labour force and entrepreneurship. Available

evidence from economies such as Indonesia, South Korea,

Bangladesh, India and Ghana which have exhibited success in

developing the informal sector shows that micro-enterprises are100

major engines in industrial and commercial development when there

positive comparative attributes are harnessed and developed

alongside the formal economy (see Evans et al., 2006). The

businesses from the informal sector also contribute important

connecting points between the various sectors of the economy

where flexibility of products and services supplied play a

crucial role in the commercial network of the country. It has

also created avenues for the middle and upper income persons and

rich entrepreneurs to moonlight in a variety of activities in

this sector as a means of survival strategy in order to weather

the adverse consequences of the liberalization and deregulation

policy (Tripp, 1990:49; Dike, 1992).

In spite of the employment problems in the urban sector

(open unemployment, disguised unemployment, job and skill

mismatch), the rate of growth in the informal sector in Lagos

State has remained high due to rural-urban migration brought

about by the high concentration of development efforts in the

city having been the former capital as well as the commercial and

industrial hub of Nigeria (Okowa, 1987). Since migration is age

and gender dependent, the city of Lagos has experienced a very101

high concentration of labour force growth that far exceeds the

rate of growth of formal sector jobs. As such, the informal

sector has provided the anchor for housing many of these

migrants. For instance, Fapohunda et al. (1975) found that 50

percent of the labour force in Lagos was involved in the informal

activities. The informal sector of Lagos can be said to be mainly

engaged in the production and distribution of goods with about 70

percent of persons engaged in rendering service activities. The

production of other different types of services, including

fabrication constitutes about 21 percent of economic activities

undertaken in the informal sector (Fapohunda, 1985:30). Informal

sector enterprises in Lagos are predominantly one man businesses

with most of them being single proprietorships (Abumere, Arimah

and Jerome, 1998:23).

However, over the last two decades, the sector has grown in

leaps and bounds due to the emerging trends of urbanization,

rising unemployment, population growth and the socioeconomic

policies of government in the country. In spite of this expansion

in generating employment opportunities which was clearly

acknowledged in Nigeria’s Third Development Plan (1975-1980), the102

government has not thought it expedient to provide specific

public policy framework for the sector as a viable and

significant engine of development (see Meagher et. al, op cit:3).

This is in contrast to the Economic Commission for Africa (1992)

Study on African economies, which indicated that the informal

sector’s contribution in the Africa countries is estimated at

about 20 percent while its contribution to the GDP of the non-

agricultural sector stood at 34 percent and that of Nigeria

stands at 25 percent.

Consequently, the informal sector in Lagos is presently

characterized by varied challenges arising from Nigeria’s

implementation of economic reform measures which have completely

altered its nature and composition, the social and structural

conditions in which it operates as well as the linkage between it

and other sectors. For instance, following Nigeria’s economic

recession which began in 1981 as a result of the sharp fall in

oil prices, infrastructural and social services expansion in

Lagos State has been on the decline over the years. Energy and

water access, sewage, transportation and housing have all being

adversely affected, and these challenges had severely affected103

the well-being of the generality of the populace, particularly

the self employed persons, majority of who belong to the informal

sector.

Similarly, the age and educational distribution of the

informally employed persons have become similar to that in the

formal sector as more educated adults (within 21- 49 years) have

found themselves in the sector (see Ogunrinola, 2007:83-8;

Folawewo, 2006; Roberts, 1991). Besides, operators in the sector

still continue to experience problems of low productivity, low

real incomes, poor working conditions and few opportunities for

advancement (Mabogunje, 1994). Although some of the more

structured groups of the sector, such as street traders and

artisans, tend to have an entrepreneurial character to generate

incomes. Nonetheless, the activities of the sector is still

marginalized, vulnerable and characterized by limited markets,

inadequate economic returns arising from the economic policies of

deregulation, trade liberalization, currency devaluation, subsidy

removal and privatization which have resulted in high exchange

rates, high prices for petroleum products, high production costs,

and skyrocketing inflation. 104

These conditions contrast the earlier held perspective that

most of those in this sector are there by default i.e., who for

the absence of jobs in both the public and organized private

sectors had nowhere else to go; but to settle in the sector to

earn their livelihood as a survival strategy (see Latouche,

1993:49). However, further studies have shown that this is not

entirely true, as the informal economy has emerged in most Third

World nations as a direct byproduct of the advent of a

deregulated open world economy which acts as a substitute to a

weak formal economy (Amin et al., 2002). As such, there has been

strong clamour on the need to develop policy intervention that

should assist and protect those in the sector who are seen as

extensive in marginalized populations (see ILO, 2007:1).

Consequently, several motives have been adduced for the

participation of persons in this sector which varies along these

lines:

i. Labour market flexibility: Many, particularly women,

prefer this sector because it offers flexibility in

participation e.g., combining household

105

responsibilities with income earning opportunities by

choosing their own hours and place of work as well as

the activities (see Mabogunje, 1994).

ii. Existence of profitable opportunities: Some enter this

sector voluntarily because there are profitable

opportunities. Being small these units are in an

advantageous position to exploit the market niches

waiting to be exploited, by offering tailored services

(which large enterprises may not find attractive or

capable of offering) and thus enjoy natural protection

(e.g., many wage workers leave formal sector to

establish own enterprises in the informal).

iii. Non-compliance with regulations: Many units often

choose to be small and remain unregistered or

unlicensed or invisible and thus get mislabeled into

the informal sector so that they can avoid compliance

with some or all regulations, since compliance with

them generally adds to costs burden. One should,

however, make a distinction between those who can

afford to comply with regulations (i.e., their business

106

revenue is high enough to bear the cost of regulations)

and those who cannot because their incomes are too low.

In other words many non-poor may also form part of the

informal sector. This is in addition to wage earners

who also moonlight in the informal sector partly due to

poor wages and job insecurity (see Sethuraman, 1997;

Bender, 2004).

Though the motives for participation in the informal sector

vary for operators, they do have a single common characteristic

which is that each unit is independent and free to make its own

decision about the business to take part in. The policy

implications of this is that the incomes and productivity of

these units can be influenced through direct assistance

programmes aimed at strengthening their productive capacity as

well as by changing the business environment in which they

operate (ECOSOC, 2006). It is clear from the above that the urban

informal sector is not one homogenous category; there are

different kinds of activities, different sizes of business, with

different motives for participation. It is also evident that both

poor and non-poor participate in the informal sector. As such,

107

any strategy to raise incomes of workers in this sector should

recognize these differences. Some of these salient features are:

i. two thirds or more of these units are owned and

operated by individuals as own account business or as

family enterprises;

ii. only a third (or less) engage paid workers; wage

employment therefore constitutes only a fraction of

total employment in this sector;

iii. many of the owner-operators being poor, these units

possess little capital by way of investment; and.

iv. few operators have adequate premises, if they possess

one at all; and many lack minimum infrastructure (see

Sethuraman, 1997; Mabogunje, 1994:27).

The informal sector in Lagos, Nigeria through its expansion

over the years has brought a lot of benefits to the citizenry in

spite of operating in a hostile policy environment and without

subsidy from the government. Many poor people have benefitted by

gaining access to incomes through employment in the sector since

capital investment required to create a job is only a small

108

fraction of what is needed in the formal sector. Other units in

the sector are engaged in recycling of materials through

collection and disposal of garbage in cities and thus contribute

to a better environment. Also, the bulk of the medium and low-

income housing in developing countries is produced by the

informal sector operators who function as masons, bricklayers and

labourers. These arguments, therefore, emphasize the need to

promote the employment and incomes of operators in the urban

informal sector.

Furthermore, units in the informal sector provide vital

connecting points between the various sectors of the economy

where flexibility of products and services supplied play a

crucial role in the commercial network of the country. They also

have in addition the highly desirable quality of being in

virtually all cases home grown enterprises and as such do not

carry with them the same risk encountered by foreign firms

seeking to introduce operating methods that are inapplicable to

local conditions (Morgan, 1989). On the other hand, the sector

suffers from a variety of constraints, including lack of access

to resources and markets as well as land and infrastructure which109

hampers its capacity to participate in development as effectively

as the formal sector. Furthermore, the physical and human

endowments of the microenterprises in the sector are also very

limited, coupled with operating in a hostile political, social,

cultural and institutional environment (see Jerome, 1996; Amin,

1981).

It is clear from the literature that there is very little

disagreement on the existence of the linkages between the

informal and formal sectors in academic circles; however there

are wide ranging views on what these linkages mean for policy.

Both the empirical and theoretical literatures are silent on what

informs the drive towards formalising the informal sector by the

policy makers, the steps taken to formalise it, its impact on the

business performance of the informal sector and internally

generated revenue of the state government and the palliative

measures put in place by the government agencies in order to

cushion the effect of formalising the informal sector of the

economy. In essences, the current study is conceptualised to

explore this gap and document the process that can be followed

based on Lagos State experiences. 110

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Conceptual Framework

The informal sector constitutes all production units;

enterprises, retail and services, which are not registered at the

Chamber of Commerce and does not apply labour laws. The general

view of the informal sector is that it comprises of activities

primarily of petty traders involved in such activities as selling

of second-hand clothes, shoe shinning, food selling and repair

111

and construction; operating mainly from the streets of the main

urban centres. It can also be described as any activity

generating income and profits, though on a small scale, uses

simple skills, is dynamic and not tied to regulation of the

activities. Such activities include among others: vegetable

selling, street vendors, masonry, carpentry, (Khasnobisetal,

2007).

In the same vein, the size of the informal sector is of

particular interest to economic policy makers concerned to

promote the development of a micro-entrepreneurial sector. This

concern arises because of its perceived contribution to dynamic

economic efficiency, possibly as a response to growing

competitive pressures brought about by trade liberalization. On

the other hand, policy makers may be concerned that significant

numbers, perhaps even a majority of workers in developing

countries have little or no social security provision. This means

that they have little on which to fall back in the event of

illness, unemployment or old age, beyond personal wealth and

extended family support. A narrower but nevertheless important

112

concern may be to reduce informality in order to widen the base

of direct taxation (Castells, 2002).

The linkages between the formal and informal sectors form an

important part of their character. The literature discusses the

linkages as important for understanding the issues of the

informal sector. Historically, these relationships have not been

explored or formed an integral part of policy discussions

regarding the informal sector. Studies have revealed the “derived

demand” character of some informal sector activities and how a

downturn in the overall economy and weak formal sector demand can

adversely affect the Informal Sector. Thus, policy interventions

need to be cognizant of the inter linkages when they consider

Informal Sector needs. Pre-crisis East Asia, for example, has

clearly shown how the lack of policies and programmes for the

Informal Sector can be detrimental when a shock hits. In fact, as

a result of this neglect, these economies had to pay a heavy

price. It is surprising that policy discussions have not taken

into account formal- informal sector linkages despite their close

connection. One could argue that the entrepreneurs in the

informal sector face the same challenges as those in the formal

113

sector, but on a somewhat larger scale or with differing depth

(Peter, 2011)

Recent discussions in expanding social protection to the

Informal Sector have brought to light many opportunities and

challenges given the close linkages between these two sectors. It

is clear that there is very little disagreement on the existence

of these linkages in academic circles, however there are wide

ranging views on what these linkages mean for policy. Indeed, the

very first step forward would be for policy makers to acknowledge

the existence and importance of these linkages in the first

place, thus enabling the initiation of the natural next step,

namely to address and utilize the Formal Sector-Informal Sector

linkages in policy. Until policy makers fully realize and

acknowledge the Formal Sector-Informal Sector linkages, these

linkages cannot fully be exploited (Pratap, 2006).

Moreover, government policy towards the activities of the

informal sector varies between countries and has evolved over

time in accordance with changing political ideologies and

perspectives on the theory of economic development. It does not

exist in a vacuum, nor is it unrelated to broader political and

114

economic thinking among government policy-makers. The attitude

and policy of the government towards the informal sector will

significantly affect the magnitude and the quality of economic

activities and employment in this sector as well as the influence

that own-account workers, dependent workers and micro-enterprises

in the informal sector exert on other components of the economy

(Centeno et al, 2003).

During the late 1970s and 1980s in most developing countries

and many industrialized countries economic growth was either non-

existent or insufficient to absorb expanding populations; and job

creation was too slow to prevent an explosion of unemployment and

underemployment. For those lucky enough to have a regular job,

real incomes declined, working conditions deteriorated and job

security vanished. For the remainder, the only alternative was to

try to scratch a living in the informal sector. The important

contribution that the informal sector has made to economic

survival of billions of workers is undeniable, and it is

acknowledged that there is often considerable entrepreneurial

spirit and creative potential within certain components of the

informal sector. Very often, mutual support systems emerge in the

115

sector which enables workers to cope with problems and harness

new opportunities. Self-help and self-finance networks develop

within the informal sector, based on families or friends. In

short, informal sector workers are usually innovative, dynamic

and flexible — but poor (Adjebeng-Asem, 1987).

It is also generally recognized that the quality of work,

the standard of living and the degree of exploitation of workers

in the informal sector are unacceptable. Consequently, working in

the informal sector amounts to little more than a survival

strategy or a second-best solution for the vast majority of

people who find themselves confined to working in that sector.

Nevertheless, many people would say that low income is better

than no income at all and that any job is better than no job.

Despite major concern for the welfare of workers in the informal

sector, trade unions would generally concur with these

sentiments, provided that public policy is directed at trying to

improve the position of workers in this sector and integrate them

into the formal sector (Adamu, 1996).

116

In an effort to reduce the exploitation of workers, it is

being recognized however that the informal sector can make a

valuable contribution as a survival strategy for those outside

the formal sector, attempts have been made to strike a balance.

For example, the ILO’s Employment Policy (Supplementary

Provisions) Recommendation, 1984 (No. 169), calls on member

States to recognize the importance of the informal sector as a

source of jobs while seeking "progressively to extend measures of

regulation to the informal sector", even though account should be

taken of the fact that integration of the informal sector may

reduce its ability to absorb labour and generate income, at least

in the short term (Elaian, 1996).

Part V of the Recommendation, devoted to the informal

sector, recommends that member States: (i) elaborate and

implement employment promotion programmes to encourage family

work and independent work in individual workshops; (ii) promote

complementary relationships between the formal and the informal

sectors; (iii) provide greater access for undertakings in the

informal sector to resources, product markets, credit,

117

infrastructure, training facilities, technical expertise and

improved technology; and (iv) seek to facilitate the progressive

integration of the informal sector into the national economy

while taking measures to increase employment opportunities and to

improve conditions of work in the informal sector (Elaian, 1996).

With regard to small undertakings, the same ILO instrument

recommends that necessary measures be taken to improve not only

the access of these undertakings to product markets, credit,

technical expertise and advanced technology but also the working

conditions in these undertakings (ILO 1972).

The dramatic expansion of the sector and its apparent

relative "success" when compared with declining job opportunities

in the formal economy have induced a romantic view of the

informal sector in some circles. During the 1980s and most of the

1990s an excessively optimistic perspective on the informal

sector was popularized by the proponents of neoclassical economic

theory. Consequently, the development of public policy concerning

the informal sector in the last few decades must be seen in the

context of the pervasive influence that the standard structural

118

adjustment policies, imposed by the international financial

institutions, have exerted on economic development (Lubell,

1993).

As part of the neoclassical paradigm, a new and

controversial view of the informal sector emerged. According to

this line of thought, rather than trying to restrict or

regularize the informal sector, governments should concentrate on

creating an enabling environment for it. It was argued that the

high costs and the time involved in registering a business, the

complexity of administrative procedures and the inadequacy of the

regulations to meet the informal sector’s needs acted as

deterrents and discouraged entrepreneurs from legalizing their

activities. At the centre of the criticism was the assertion that

the costs of compliance with labour legislation were particularly

excessive, and that this resulted in firms remaining in the

informal sector. In addition, for enterprises in the formal

sector it was argued that high labour costs would encourage

entrepreneurs to reduce their workforce and substitute more

capital equipment for labour. In either case, the neoclassical

119

economists claimed that the outcomes were economically

inefficient and society as a whole would suffer (Moser, 1978).

The response advocated by the neo-liberal economists, and at

times by the international financial institutions, was to remove

the barriers between the formal and the informal sectors by

eliminating or reforming a range of regulations in fields such as

labour legislation, minimum wages, social security, workplace

health and safety, and taxes, as well as regulations concerning

the registration and administration of an enterprise. The

proponents of these reforms argued that they would free private

initiative and the economic potential of the self-employed and

micro-enterprises operating in the informal sector (de Soto,

1989). The whole emphasis switched to deregulation and withdrawal

of the government to ensure that the private sector was not

"crowded out" by public investment or overburdened with

government red tape. These policies were pursued first, and most

vigorously, in a number of Latin American countries, but they

spread to other regions and assumed centre stage globally

(Lubell, 1993).

120

3.2 The Study Area

Lagos State was created on May, 27 1967 by Decree No 14 of

1967. As an old Yoruba town, Lagos was founded in the fifteenth

century as a Portuguese trading post exporting ivory, peppers and

slaves. It subsequently fell into the hands of the British, who

began exporting food crops (palm products) and other goods after

outlawing slavery in 1807. In 1906, Lagos was joined with the

British protectorate of Southern Nigeria, and, in 1914, when the

Southern and Northern protectorate were amalgamated; it became

part of the small coastal colony of Nigeria. In 1954, most of

the colony was merged with the rest of Nigeria, but Lagos was

made a separate federal territory. From the late 19th century to

independence in 1960, Lagos was the centre of Nigerian

nationalist movement. It remained the political capital of

Nigeria until 1991 when the seat of the Federal Government was

moved to Abuja on 12th December 1991 (Etinosa, 2008).

Lagos is the most populous city in Nigeria. The metropolitan

area, an estimated 300 square kilometers, is a group of islands

121

endowed with creeks and a lagoon. Lagos is known for its bursting

business activities. It is Nigeria’s financial, commercial and

industrial nerve centre with over 2000 manufacturing industries

and over 200 financial institutions (banks, insurance companies)

including the Nigeria stock exchange. Indeed, the headquarters of

multinational conglomerates like UAC, Unilever, John Holts,

Church gate, Chevron, Shell, ExxonMobil and the nation’s public

enterprises are all located in the state. The State alone harbour

60 percent of the federal trade industrial and foreign trade

while also attracting 65 percent of commercial activities. It

also account for more than 40 percent of all labour emoluments

paid in the country. It therefore follows that Lagos State also

provides the platform for the huge presence of informal sector

activities (Etinosa, 2008).

It is also Nigeria’s chief port and economic and cultural

centre. Apapa is the chief port district. With an area of 43

square kilometers, Lagos comprises several island and the

adjacent mainland areas. Notable among the places on the Island

are Victoria Island, Ikoyi and Isale-Eko; the mainland is made up

of Ebute-Metta, Yaba, Surulere, Apapa, Ikeja and Agege among122

others. The capital of Lagos State is Ikeja. It takes the lion

share of the location of industries, but Lagos Island has the

highest concentration of retail and commercial outlets and

bureaucracy (Etinosa, 2008).

3.3 Study Population

The study population comprised the informal sector operators

in Lagos State and the officers that worked with Lagos State

Internal Revenue Office. The study was targeted at production,

wholesale and retail trade and social service operators involved

in informal sector activities in Lagos State. Following the 1991

census, the population of Lagos State was put at 5.7 million

people and 9 million in the 2006 national census. The State is

ranked as the most densely populated in Nigeria with a labour

force that has doubled the 2.5 million reported in the 1991

census statistics (National Population Commission, 1992). In

conducting this study, twenty of the Local Government Council

Areas in Lagos State were chosen using the multi stage sampling

technique from which respondents were selected. The size of

123

sampled respondents chosen from each Local Government Area is

roughly proportional to the population sizes of each Local

Government using the 1991 census figure. The Local Government

Areas chosen were Apapa, Ajeromi-Ifelodun, Agege, Alimosho,

Amuwo-Odofin, Badagry, Epe, Eti-Osa, Ibeju-Lekki, Ifako-Ijaye,

Ikeja, Ikorodu, Kosofe, Lagos Island, Lagos Mainland, Mushin,

Ojo, Oshodi-Isolo, Shomolu, and Surulere Local Councils.

3.4 Sample Size and Sampling Procedure

Since the informal sector group in Lagos State is large

given its huge population density, one cannot possibly study all

the subjects or items in the population. Hence the researcher

selected a sample from or a subset of the population of informal

sector operators using the purposive sampling technique. The 30

local government councils in Lagos State were used as the

sampling frame. Purposive selection was employed as the sampling

procedure, in which 20 local government councils were selected.

Two hundred questionnaire were administered among the 20 local

government councils evenly and Focus Group Discussion was

124

conducted among 20 workers of Lagos State Internal Revenue

Office.

3.5 Method of Data Collection.

Given the nature of the study which is mainly an exploratory

in nature, survey method was used to collect descriptive

information to assess the relevance, reliability and validity of

the government policy on income generation from informal sector

in Lagos. The information required for the study was obtained

using primary and secondary sources. The survey was conducted

using the interview schedule (questionnaire administration) and

the Focus Group Discussions (FGDs) methods which served as our

primary sources of data collection. The questionnaire used for

this study contained 30 set of questions used to gather data on

socioeconomic, demographic and other characteristics of operators

to be used in the analysis of the research questions and

objectives of the study. The questionnaire contained both closed

and open-ended questions. The closed ended questions were rated

in a four point Likert scale format with four types of responses.

125

The interview (questionnaire) schedule was personally

administered by means of face to face contact with the use of 5

field assistants (interviewers) who were trained on the details

and nature of the study. These interviewers were supervised by

two field supervisors to ensure quality control. Other measures

put in place to ensure the highest standards were for the

supervisors to engage on-the-spot field check of field

interviewers to eliminate fraud, review of all completed

questionnaire for accuracy and consistency so that those

questionnaire that were not properly filled were removed before

data entry.

Besides, secondary documents and publications relating to

the policy of formalising the informal sector used by the Lagos

State Government and the guidelines followed were collected for

review and analysis.

The interview schedule was organized into three sections in

the questionnaire. The first section centred on questions aimed

at gathering information on respondents’ demographic

compositions: age, sex, level of education, occupation, marital

status, religion, type of residence and household composition.126

The second section focused on questions regarding the living and

working conditions of respondents in the sector. Here questions

were raised on the range of informal sector activities, personal

characteristics of the respondents, size and nature of their

activities. Questions relating to the socioeconomic conditions

and overall well-being of operators were raised. Issues regarding

nature of business earnings, ability to provide their basic

social needs and household requirements were examined. The third

section of the questionnaire examined the impact of policy of

formalisation on the informal sector business performance. The

questions raised in this section included whether the

formalisation of the informal sector policy addressed their basic

social needs as well as challenges associated with their

businesses. This section dealt with assessing the implications of

the economic reform policies used by the Lagos State Government

in formalising the informal sector, as regards its effects on

their business performance and social welfare. Questions that

focused on the human capabilities/empowerment of respondents were

examined. Questions that centred on whether the formalising

127

policy has created the capacity for empowering the respondents to

live better quality of life were raised.

Similarly, the responses of the officials of the Lagos State

Internal Revenue Office on the process of policy of formalisation

of informal sector were captured through Focus Group Discussions.

Also at this section, the documents that contained guidelines and

procedures for formilising the informal sector were collected

from the relevant authorities for review. This section dealt with

assessing impact of government economic reform policies on the

internally generated revenue in Lagos State. The questions raised

included whether the formalising the informal sector policy

augmented the revenue generated internally in Lagos State since

its inception. Here, the total amount generated internally since

January 2008 from the informal sector up to August 2012 was

collected from Lagos State Internal Revenue Board for analysis

purpose. The final section dealt with suggestions on means of

improving the business conditions and welfare of respondents and

ensuring the steady flow of internally generated revenue by the

Lagos State government from them.

128

The interview schedule was complemented with the Focus Group

Discussions (FGDs) method–to gather qualitative data on the

study. It was used in discussions organized for small groups. A

total of four FGDs sessions (made up of 8-9 respondents each)

were held at the mini-offices located at the markets that those

officials were manning for collection of tax from the traders.

This decision for limiting the FGDs sessions to four was

necessitated by the demand to avoid duplication of efforts and

waste of resources. This was based on the similarities of

information gathered from earlier FGD sessions carried out. The

discussants for the FGDs were made up of officers that work with

Lagos State Internal Revenue Office which constituted the study

population. These discussants were selected on the basis of

having the adequate and up-to-date knowledge about how the state

government used its new economic reform strategies to collect tax

from the informal sector. Each focus group was made of

discussants with homogenous features based on similar

socioeconomic and demographic criteria such as age, sex, and

education in order to allow for free discussion and exchange

within the group.

129

All Discussants for the sessions were encouraged to freely

express their opinions and perceptions on issues raised. To

prevent for domination by one or two discussants, questions were

sometimes specifically directed at more reserved discussants to

encourage them to contribute to the discussion. The discussions

were conducted with the researcher being the main facilitator

with a note taker and a tape recorder in all the four groups.

Each session lasted for only ninety minutes. The configuration of

the group was structured as follows:

Group 1. It consisted of 8 males between the ages of 18 and

25years. This session was held in Ikeja Local Government Council

Area.

Group 2. It was made up of 9 males between the ages of 26 and 45

years. This session took place at Ikorodu Local Government Area.

Group 3. This group involved only 9 females between the ages of

18 and 25 years. This Focus Group Discussion session took place

in Lagos Mainland.

130

Group 4. This group had 9 females between the ages of 26-45

years. This session was held in Apapa Local Government Council

Area.

Although the use of the survey method has been criticized

for being a superficial reflection of population sentiments

offering the researcher little or no control over individual

responses to surveys; subject to sampling error; data gathering

may be faulty and lacking reliability and validity, respondents

may provide biased and subjective information that might not give

valid and reliable results (Obasi, 1999:132). The utility of

using the method in this study lies in the significance of its

benefits which emphasized why it is used by much of the existing

studies on the informal sectors (Tokman, 1989; Hart, 1973; Amin,

1987, Mabogunje and Filani, 1977). The advantages of the use of

survey are as follows: it helps to permit generalization to be

made to wider population when only a sample was studied; it

permits the use of a variety of data collection techniques; it is

a useful tool for verifying theories and sensitizes researcher to

potential problems that were originally unknown or unanticipated

(Bowling, 1997:173; Neuman, 2000:301). Besides, the validity and131

reliability of survey instruments are enhanced through the use of

pilot study, pre-test of instrument, jury opinion (Kerlinger,

1977:417-418).

It is best used for studies of this nature where the

researcher is asking questions on the subject-matter and learning

about reported knowledge, attitudes or behaviours of individuals

regarding the issues under investigation. This instrument was

adopted to elicit some important information, which might be

difficult to obtain by any other means. The nature of such

information gathered was not only precise but also amenable to

quantitative analysis. The responses so derived from the

questionnaire formed the basis upon which analyses were made.

Also, data were gathered using secondary sources which included

periodicals, magazines, journals, internet sourcing, official

records and statistical data from government establishments like

Lagos State Internal Revenue Service, Lagos State Government

Electronic Banking System of Revenue Cycle Management were used

in the course of gathering data for the study.

132

3.7 Method of Data Management and Analysis

Different methods were used to analyze the two sets of data

that were collected from the participants. The quantitative data,

which were generated from the questionnaire, were coded and data

entry was done using the Epi-Info and the analysis was done with

SPSS. From this, univariate analyses were carried out describing

the trends and patterns of the variables in percentages.

Frequencies were also presented in tables to show major

attributes. The tables were structured in line with the

particular item(s) relevant to the issue being examined and

tested to analyze the research questions and objectives of the

study. After this stage, univariate statistical analyses were

utilized to further interrogate the research objectives.

Objective one of this study was achieved by running

frequency distribution tables to capture the nature and

characteristics of the informal sector in Lagos State. To achieve

objective two, basic secondary documents and guidelines on the

informal sector formalization process were reviewed and analysed.

These analyses were conducted with a view to identifying the

different strategies and processes followed. Objective three was133

achieved by using information generated from the questionnaire

that was administered. The data from the questionnaire were

processed into frequency distribution tables and charts to

capture the impact of formalisation on the performance of the

newly formalised business enterprises. For achieving objective

four, the implication of the formalisation process on the

Internally Generated Revenue in Lagos State was examined by using

the pre and post Internally Generated Revenue data of Lagos

State. This involved looking at proportion of tax that the

process had been mobilised from formalisation initiatives since

2008.

CHAPTER FOUR

134

4.1 Data Presentation, Analysis and Interpretation

This chapter deals with data presentation and the analyses

of data. It begins with the socio-demographic profile of the

respondents. It shows the activity types which were covered, the

nature and the characteristics of the urban informal sector. It

presents the results of the review of the documents used for

formalising the informal sector activities in Lagos State and the

results from the primary data and the Focus Group Discussions

which were used to corroborate the information gathered from the

documents reviewed. It describes the socio-economic impacts of

the formalisation process on the performance of the urban

informal business activities in Lagos State. It presents the

internally generated revenue that the Lagos State Government has

been able to gather as a result of formalising the informal

sector activities in the State.

Except otherwise stated all the tables in this chapter

emanated from the author field survey.

135

4.2 Socio-Demographic Profiles of the Respondents

The distribution of respondents’ socio-economic and

demographic characteristics covered such measures as sex, age,

religion, ethnic group, marital status and educational levels.

The data provided insights about the basic profiles of

respondents who were interviewed during the survey and they were

presented in table 4.2.1 below:

Table 4.2.1 Socio-demographic Characteristics of the Respondents

VALID CATEGORY FREQUENCY PERCENTAGE(%)

SEX Male 128 64.0Female 72 36.0TOTAL 200 100.0

AGE 20 - 29years

46 23.0

30 - 39years

86 43.0

40 - 49 63 31.5

136

years50 - 59years

5 2.5

TOTAL 200 100.0RELIGION Christianit

y136 68.0

Islam 64 32.0TOTAL 200 100.0

ETHNIC GROUP Yoruba 152 79.0Igbo 48 21.0TOTAL 200 100.0

MARITALSTATUS

Single 47 23.5

Married 153 76.5TOTAL 200 100.0

EDUCATIONALLEVEL

No formaleducation

24 12.0

PrimarySchool

55

27.5

SecondarySchool

95 47.5

OND/HND 15 7.5University 11 5.5

TOTAL 200 100.0 Source: Author Field Survey.

On gender, the data indicated that 64 percent of the

respondents were males and 36 percent females. Thus, men

dominated the type of informal sector activities that were

covered in this survey. Analyses of the respondents’ age

distribution showed that about 75 percent of the participants in

informal sector activities were in their prime age. Other

137

participants included 23 percent youths who were between 20 and

29 years and 2.5 percent between age of 50 and 59 years. As

regards the religion of the respondents, about 68 percent were

Christians while 32 percent were Muslims.

On the basis of educational level, the distribution showed

that 47.5 percent (95) had secondary school education, 27.5

percent (55) with primary education and 12.0 percent (24) with no

formal education. These statistics indicated that many of the

operators in the sector were young persons who on the completion

of their primary or secondary education entered the informal

sector perhaps because of the absence of employment opportunities

in the formal sector. This is in contrast with the past where

people with primary education dominated the informal sector

(Mabogunje and Filani, 1977). A major feature of the operators is

that on the average they had limited education. Understandably,

the Yoruba people dominated the selected respondents and

specifically they were 152(79%) while the remaining 48(21%) were

Igbos. Thus, major participants in informal sector activities in

the State were the Yorubas and Igbos. More than 75% (153) of all

the respondents were married men and women. This implied that138

most of the respondents had household members which they catered

for. Data on the household composition showed that 83 percent of

the respondents had not less than five household members living

with them. The global picture of the data showed an average of 6

members per household. The implication of this for the operators

is that their per capita expenditure would be affected given the

real incomes from their businesses which might ultimately affect

the basic needs of their households.

4.3 The Nature and Characteristics of Urban Informal

Sector.

On the nature and characteristics of urban informal sector

activities prevalent in Lagos metropolis, the occupation type,

size, sources of material sold/used and location of the informal

activities were captured.

Occupation type showed that traders were 40%, carpenters,

mechanics, hair salon owners and brick layers were 5% each,

139

taxi/bus drivers and motor-cycle riders were 15% and tailoring

were 10% as presented in table 4.3.1 below:

Table 4.3.1 Distribution of Respondents by Occupation

Occupation Number Percentage (%)

Trading 80 40.0

Carpentry 10 5.0

Mechanics 10 5.0

Taxi/Bus Driving 30 15.0

Motor Cycle riding 30 15.0

Tailoring 20 10.0

Hair dressing 10 5.0

Brick layering 10 5.0

Total 200 100%

Source: Author Field Survey.

A wide range of informal sector activities was covered in

this study as it is shown in table 4.3.1. Out of the total number

of 200 respondents, 10 were from each of the 20 Local Governemnt

Areas. Since no data existed on the population of informal sector

operators in each of these Local Governemnt Areas, making a

definitive statement on the proportion of informal sector

140

activities which the sample represents became impossible. The

single largest number among the activities covered was trading.

Likewise, the table also shows that the predominant activity of

the informal sector enterprises was the sale of goods or services

to final consumers. This is understandable since the survey dealt

with the urban sector where production of resource-intensive

commodities is often not possible.

141

Table 4.3.2a: Age, Nature and Size of the Informal Sector Activities

ITEMS MEANSAge of the business (in years)

24.06Average number of working days per week 5.90Average number of working hours per day 9.80Average number of workers 1.87Average number of household labour 1.48Source: Author Field Survey.

142

Table 4.3.2a indicated the age, nature and size of the

informal sector enterprises covered in the study. The data shows

that the 200 enterprises selected had 24 years as their mean

lifespan. Also, the informal sector enterprises had about 2

workers on the average in their employment. A deeper analysis of

the employees of the informal sector businesses indicated that

about 45 percent of those employed in the sector were members of

the family.

The results from the table 4.3.2a also showed that the

informal sector required a relatively longer working day as well

as a relatively longer working week. The average working day was

9.8 hours, while the average working week was 6 days. This

indicated that the informal sector demanded extensive labour

time. The average working week was just less than 60 hours. The

longer working week is explained by the fact that profit margins

in the informal enterprises are low. This is largely due to the

143

ease of entry into the sector, leading to larger competition.

Operators, therefore, increase sales volume by longer working day

and longer working week than the average formal sector enterprise

which has a 40-45 hour working week.

Table 4.3.2b: Sources of Material Sold/Used and Location of

Informal Activity

Variables Proportion (%)Source of MaterialOwn Resources 35.5Raw material purchased from outside 14.5Final product purchased and sold 50.0Location Own house/compound 7.0

144

Rented premises 15.0Friend’s or relative’s place 1.0Public place 77.0Source: Author Field Survey.

It was earlier shown from previous study (Arimah, 2001)

that, most of the urban informal enterprises are involved in the

145

sale of goods and services to the final consumers. The goods

which are sold are often not produced by the operators. Table

4.3.2b shows that more than a third of the operators used their

own resources. Only half of the operators purchased goods from

others and re-sold them.

In addition, 77 percent of the urban informal enterprises

were carried out from a public place. These are places which are

owned by either the municipal councils or the State, including

road sides, street corners and footpaths. This saves the rental

component of costs which formal sector enterprises incur.

146

4.4 The Strategies Used in Formalising and CollectingDirect Tax from the Informal Sector in Lagos State.

Informal sector constitutes a significant part of most

developing economies. It has served as a means of employment and

income generation for majority of the middle and low income

bracket in most of these economies (Klarita Gerxhani, 2003).

However, it has been difficult to capture the magnitude of their

activities and contribution to GDP in the sector due to

informality. Besides, the tax revenue implication of the

activities in the sector has been difficult, if not impossible to

capture and access. Therefore, in an attempt to improve the

service delivery capacity of the sector and bring the sector

under state tax administration, the Lagos State Government

embarked on the formalisation exercises.

In this sector, attempt was made to identify the strategies

adopted by the State government in formalising the informal

147

sector. The results of the Focus Group Discussions conducted

among the tax officers working with Lagos State Internal Revenue

Service, the review of the guidelines and the related documents

used in formalising the informal sector by the Lagos State

Government, indicated the following:

First, a public enlightenment on the challenges of informal

operators in the sector and the limit it constitutes to the

growth of the sector was carried out. Besides, the enlightenment

covered the importance of the government support for the growth

of the sector and the relevance of tax administration for the

overall growth of the State. The enlightenment though involved a

lot of resources is considered important to carry the populace

along and to secure acceptance for the action.

Second, the institutional set-up of Lagos State Board of

Internal Revenue was reviewed through the assistance of a private

sector based consultant. The review of the board led to the

following actions:

i. Lagos State Board of Internal Revenue was separated from

the Lagos State Ministry of Finance to become a semi-

148

autonomous unit of the State, reporting directly to the

State Governor.

ii. The unit embarked on employment of tax officers, who were

subjected to training for the purpose of tax collection

in the State.

iii. To handle information on tax payers, a strong database

was developed to capture nature of business, monitor the

accuracy of the information given on tax assessment by

individuals, associations and companies.

iv. Mini Internal Revenue Offices were established at

different market places and streets, in order to bring

the tax officers close to the targeted informal sector

operators. This also enables them to have a rough

estimate of the number of informal sector operators

within their domain.

v. A form is provided by the tax officers for all the

informal sector operators within their domain, which

serves as a form of official registration of their

business. The registration always takes place within few

minutes and no amount of money is paid for the

149

registration. This form also serves the purpose of

informing the business operators to go and pay his/her

tax at any of the banks close to them. A sum of N2,500 is

required to be paid annually by every informal sector

operator into Lagos State Account Details provided on the

form given to them.

vi. Executives of the market places and that of associations

of different artisans were given the account details for

paying the tax by the tax officers, in order to make it

available any time everywhere and to reduce the rate of

noncompliance. A fine of N5,000 is paid by any informal

sector operator that fails to pay his/her tax including

the expected N2,500.

vii. An electronically issued receipt is given to any informal

business operator, at the Lagos State Board of Internal

Revenue Office, who shows the evidence of paying by

presenting the bank teller used to pay the money in bank.

viii. An identification card is provided for those business

operators that have paid their taxes for the past three

consecutive years.

150

ix. A Pre-paid Collection Machine was provided for the unit

by the state government to record and save the tax

collected from the informal sector in Lagos State. The

machine is also used to check how the tax is paid every

minute by the informal sector operators and identify

those that do not comply. Those who fail to pay are

detected based on the rough estimates provided by the tax

officers at the Mini Internal Revenue Offices.

x. Provision of credit facilities, skill development and

training were the supports pledged by the State

Government if full compliance is displayed by the

informal sector.

All the information provided above was gathered from the

responses of the tax officers during the Focus Group Discussion

conducted for them. Likewise, from the review of guidelines and

documents used for formalising the informal sector by the Lagos

State Government.

4.5: Impact of Lagos State Policy of Formalisation of the on Informal Sector on their Business Performance.

151

The study took interest in the impact of the State

formalisation policy with reference to awareness of the people

about the policy and what people perceived as the benefits of the

policy especially as regards to the provision of social

amenities.

Diverse views were expressed on the direction of the new

government policy among the respondents. Table 4.5.1 showed, that

majority (185) of the respondents were aware of the new

government policy. However, 57% were of the opinion that the

policy is mainly targeted towards collecting tax from the

operators in the informal sector. Also, 57 (28.5%) viewed it as a

policy to be used to effect the relocation of the traders, while

only 7.0% accepted that the policy would yield positive result by

making life better for Lagos dwellers.

It is indicated from table 4.5.1 that, among those that were

not aware of the government policy, some of them felt that

government was intended to stimulate payment of tax and get some

traders reallocated to government designated locations.

152

Table 4.5.1: Awareness of New Government Policy

What they feel the Policy is all about.

TotalPaying tax byeverybody

Relocatingtraders

Making lifebetter

Awareness of New GovernmentPolicy by the Respondents.

Yes 114 57 14 18557.0% 28.5% 7.0% 92.5%

No 10 5 0 155.0% 2.5% .0% 7.5%

Total 124 62 14 20062.0% 31.0% 7.0% 100.0%

Source: Author Field Survey.

153

The opinions of the respondents from the field, shown on

table 4.5.2 indicated that a good number of the respondents

expected positive impact of the policy on road construction,

electricity supply, provision of health care and education. To be

more specific, among those who were aware of the policy, 56.5%

expected impact on good road network, 6.5% expected impact on

electricity supply and 29.5% wanted impact on health care and

education.

Furthermore, among those who were not aware of the new

government policy, some still expected the government policy to

154

have impact on good roads network, health care services and

education.

155

Table 4.5.2: Benefits of New Government PolicyBenefits mentioned by the respondents

TotalGood roadsRegular

Electricity

AffordableHealth Care

andEducation

Awareness of the Benefits of New Government Policy by theRespondents.

Yes 113 13 59 18556.5% 6.5% 29.5% 92.5%

No 10 0 5 155.0% .0% 2.5% 7.5%

Total 123 13 64 20061.5% 6.5% 32.0% 100.0%

Source: Author Field Survey.

156

A key background motive of government on the formalisation

process is to support the small and medium scale enterprises

(informal sector unit), if they flow with the formalisation

exercise. Based on the policy, the supports covered areas such as

provision of credit facilities, skill development and training.

Table 4.5.3 showed the rate of awareness of the basic support

among the respondents. In this regard, majority (59.5 and 73.5

percents) of the respondents were aware that provision of credit

facilities and skill development and training respectively, were

basic supports promised to be provided by the State government if

they flow with the formalisation policy.

157

Table 4.5.3 Awareness of Government Policy on Provision of CreditFacilities and Skill Development Training

Items Aware Not Aware TotalCredit Facility 119 (59.5%) 81 (40.5%) 200Skill Development Training

147 (73.5%) 53 (26.5 %/) 200

Source: Author Field Survey.

158

In the course of this study, the understanding of the

advantages of the basic supports and whether such advantages have

been derived by the respondents were verified from them. It is

indicated in the table 4.5.4 that 182 (91%) respondents had not

benefited from the credit facilities support of the State

government, whereas only 18 (9%) respondents said they had

benefited from the basic support. This might be due to a lot of

factors such as favouritism and nepotism on the part of the

officials that handled the administration of the credit

facilities, which were not captured in this study.

On the awareness of the benefits of credit facilities among

those that had not benefited from the support, 69(34.5%) said

159

that provision of credit facilities would augment their stock,

61(30.5%) were of the opinion that it would increase their profit

margin while the remaining 52(26.0%) perceived it as a means of

paving way for increase in the rate of patronage. Among those

that had benefited from the credit facility, 4%, 3% and 2% were

of the opinion that augmenting stock, increasing profit and

increasing patronage respectively, were the benefits ascribed to

the credit facility that had been given to them.

Table 4.5.4: Government Policy on Credit Facilities afterFormalisation Programme.

160

Benefits of Credit Facilities fromRespondents’ perspectives

TotalAugment StockIncreaseProfit

IncreasePatronage

Benefiting from the Credit Facilities provided by the State Government.

Yes 8 6 4 184.0% 3.0% 2.0% 9.0%

No 69 61 52 18234.5% 30.5% 26.0% 91.0%

Total 77 67 56 20038.5% 33.5% 28.0% 100.0%

Source: Author Field Survey.

161

Our evaluation of the knowledge of the respondents, large

percentages of them had appreciable knowledge of the impact of

the need for skill development and training for better

performance. From table 4.5.5, about 15.5 percent of the

respondents have benefited from the skill development and

training initiative. This shows that many of the respondents were

yet to be covered by the training. Among those who have not

benefited from the initiative, 68(34.0%); 51(25.5%) and 50

(25.0%) of them were of the view that, increase in dexterity,

retaining patronage and high sales were the benefits ascribed to

the provision of adequate skill development and training,

respectively. On the other hand from those that had benefited

from the skill development and training initiative, 6.5%, 8% and

5% said increasing dexterity, retaining patronage and high sales

were the benefits associated with the skill development and

training initiative that they had undergone.

162

Table 4.5.5: Skill Development and Training Policy afterFormalisation Programme

163

Benefits of Skills Development andTraining from Respondents’ perspectives

TotalIncreaseDexterity

RetainPatronage High Sales

Benefiting from the skill Development Training organized by theState Government.

Yes 13 8 10 316.5% 4% 5.0% 15.5%

No 68 51 50 16934.0% 25.5% 25.0% 84.5%

Total 81 59 60 20040.5% 29.5% 30.0% 100.0%

Source: Author Field Survey.

164

Based on the results from this field survey, it is showed

from table 4.5.6 that trading activities enjoyed that highest

benefit from credit facility initiative, with tax/bus driving

railing behind it. They have 7.5% and 1.5% respectively of the

total number of occupational type that benefited from the basic

support initiative. The implication of this might be due to how

well recognised, structured and strong the union of each of the

occupational types is, but this was not covered in this study.

165

Table 4.5.6 Occupational distribution of those that had benefitedfrom credit facility initiative

Benefited from the Credit Facilitiesinitiative Total

Yes No Occupation types Trading 15 65 80

7.5% 32.5% 40.0%Carpentry 0 10 10

0.0% 5.0% 5.0%Mechanics 0

0.0%10

5.0%10

5.0%Taxi/Bus driving 3

1.5%27

13.5%30

15.0%

Motor cycle riding

00.0%

3015.0%

3015.0%

Tailoring 00.0%

2010.0%

2010.0%

Hair dressing

00.0%

105.0%

105.0%

166

Brick laying0

0.0%10

5.0%10

5.0%Total 18 182 200

9.0% 91.0% 100.0%Source: Author Field Survey

From the results of this field survey, it is indicated among

the occupational types that were covered; that carpentry had

3.5%, tailoring had 4.0% and trading, mechanics, tax/bus driving

and hair dressing had 1.5% each, of the total benefits derived

skill development and training. Likewise, brick layering had 2%

of all the benefits enjoyed from skill development and training.

This might be due to the fact that most the occupations that

required the use of equipment benefited most from the skill

development and training initiative, but the reason for this was

not covered in this study.

167

Table 4.5.7 Occupatioal distribution of those that had benefitedfrom skill development and training initiative

Benefited from the skill development andtraining initiative Total

Yes No

168

Occupation types Trading 3 77 801.5% 38.5% 40.0%

Carpentry 7 3 103.5% 1.5% 5.0%

Mechanics 31.5%

73.5%

105.0%

Taxi/Bus driving

3 1.5%

2713.5%

3015.0%

Motor cycle riding

00.0%

3015.0%

3015.0%

Tailoring 84.0%

126.0%

2010.0%

Hair dressing

31.5%

73.5%

105.0%

Brick laying4

2.0%6

3.0%10

5.0%Total 31 169 200

15.5% 84.5% 100.0%Source: Author Field Survey

169

One area of interest considered in this study is the impact

of the new government policy on the total amount of money

realised at the end of each month by the respondents that have

benefited from credit facility initiative. This covered before

and after the formalisation exercise. It is shown from table

4.5.8 that formalisation of informal sector that was carried out

in Lagos state had significant impact on the amount of income

earned monthly by the operators, which had benefited from the

credit facility initiative, in this sector. These results were

derived from cross-tabulating monthly income earned before and

after formalisation with the number of those that benefited from

credit facility initiative. The results in the table 4.5.8

indicated that over 99% of the respondents’ monthly earnings were

more than 20,000 Naira after the formalisation programme, which

might be connected with the credit facility enjoyed by those

respondents. So, this might positively influence their monthly

income. Similarly, all respondents that benefited from the credit

facility were of the opinion that, it would augment their stock,

increase their profit margin and sustain and increase the rate

patronage from their old and new customers.

170

Table 4.5.8: Monthly Income realised from Informal Activities prior to and after its Formalisation benefited by those that benefited from credit facility initiative.

Monthly Income Earned before theFormalisation of

Informal Activities

Monthly Income Earned after the

Formalisation of Informal Activities

Valid Frequency

Percentage (%)

Valid Frequency

Percentage (%)

Below N20,000 6 33.3 Below N20,000 0 0.0N21,000 –N40,000

8 44.4 N21,000 –N40,000

7 38.9

N41,000 -N80,000

3 16.7 N41,000 -N80,000

8 44.4

More thanN80,000

1 5.6 More thanN80,000

3 16.7

TOTAL 18 100.0 TOTAL 18 100.0Source: Author Field Survey.

171

Another area of interest considered in this study is the

impact of the new government policy on the total amount of money

realised at the end of each month by the respondents that have

benefited from skill development and training initiative. This

covered before and after the formalisation exercise. The results

in the table 4.5.9 were derived from cross-tabulating monthly

income earned before and after formalisation with the number of

172

respondents that had benefited from skill development and

training initiatives. It is shown from table 4.5.9 that

formalisation of informal sector that was carried out in Lagos

state had not exercised any significant impact on the amount of

income earned monthly by the operators in this sector. This is

indicated on table 4.5.9 where over 90% of the respondents’

monthly earnings were more than 20,000 Naira after the

formalisation programme and this might not be unconnected with

the skill development and training initiative they were exposed

to. So, this might have positive influence on their monthly

income. Likewise, all the respondents that had enjoyed from the

skill development and training initiatives were of the view that,

skill development and training initiative increase their

dexterity, retain the patronage of their old and new clients and

it brings about high sales.

173

Table 4.5.9: Monthly Income realised from Informal Activities

prior to and after its Formalisation benefited by those that

benefited from skill development and training initiative.

Monthly Income Earned before theFormalisation of

Informal Activities

Monthly Income Earned after the

Formalisation of Informal Activities

Valid Frequency

Percentage (%)

Valid Frequency

Percentage (%)

Below N20,000 4 12.9 Below N20,000 2 6.4N21,000 –N40,000

12 38.7 N21,000 –N40,000

14 45.2

N41,000 -N80,000

9 29.0 N41,000 -N80,000

8 25.8

More thanN80,000

6 19.4 More thanN80,000

7 22.6

TOTAL 31 100.0 TOTAL 31 100.0Source: Author Field Survey.

174

The study proceeded further to evaluate the impact of the

formalisation programme on the rate of patronage enjoyed by the

operators in the informal sector before and after its

formalisation. It is discovered from the table 4.5.10 that the

formalisation exercise made little or no remarkable impact on the

rate of patronage enjoyed by the operators in this sector. This

is because more than half of them said the rate of patronage was

fair and low. The reason for the results on table 4.5.10 might

not be unconnected with large number of the respondents that

claimed they had not benefited from the basic supports

initiatives.

175

Table 4.5.10: Rate of Patronage before and after the

Implementation of Formalisation Programme

Rate of Patronage Before Formalisation After Formalisation

High 53 (26.5%) 55 (27.5%)

Fair 79 (39.5%) 94 (47.0%)

Low 68 (34.0%) 51 (25.5%)

Total 200 200

Source: Author Field Survey.

176

Also, data from table 4.5.11 on sources of capital did not

indicate benefit from the credit facilities support as a result

of the implementation of formalisation policy. Thus, going by

findings in this study, none indicated credit facility from

government as source of capital for business. The reason for this

might be related with high percentage of the respondents that did

not enjoyed credit facility initiative.

177

178

Table 4.5.11: Sources of Capital before and afterFormalisation Programme.

Sources of Capital Before formalisation After formalisation Borrowing from friends and relatives

13 (6.5%) 16 (8.0%)

Borrowing from bank

8 (4.0%) 7 (3.5%)

Personal income 164 (82.0%) 155 (77.5%)Ploughing back profit

15 (7.5%) 22 (11.0%)

Total 200 200Source: Author Field Survey.

179

4.6: LAGOS STATE FORMALISATION POLICY AND ITS IMPACT ON

INTERNALLY GENERATED REVENUE.

On the revenue impact of the formalization policy, secondary

data from the Lagos State Board of Internal Revenue Office

indicated that over 88.3 million naira was realised in 2008. The

revenue grew to 200.6 million naira in 2009, which constituted a

positive growth of over 200 percent. However, the revenue fell to

153 million naira in 2010 (about -76.5% growth rates). The

revenue further declined sharply till 2012. The continuous

decline may not be unconnected with government never performed on

their promises of providing credit facility, skill development

and training for the operators in the informal sector. This can

also be related to the level of awareness of the benefits

associated with expected basic supports (credit facility and

skill development and training) among the respondents, which

majority of them had not benefited from. So, this is enough to

180

discourage them from paying tax which might have fuelled the

decline in internally generated revenue from them annually.

Table 4.6.1: Internally Generated Revenue by Lagos State Government from the direct tax levied on informal sector operators.

Years InternallyGenerated Revenue(in Million N)

Cumulative Difference

Growth Rate

2008 88,338,632.93 - -2009 200,647.092.94 112308460.01 +200%2010 153,030,045.87 -47617047.07 -76.5%2011 67,682,118.50 -85347927.37 -43.9%

2012 till31st August

47,532,600.80 -20149517.70 -70.2%

SOURCES: Lagos State Government Electronic Banking System of Revenue Cycle Management

181

CHAPTER FIVE

SUMMARY, RECOMMENDATIONS AND CONCLUSION

5.1 Summary of Findings

182

The study assessed the the government policy on income

generation from urban informal sector in Lagos State. It

specifically examined the nature and characteristics of the urban

informal sector in Lagos State, identified the different

strategies adopted by the Lagos State Government in formalising

the informal sector with a view to assessing the impact of the

formalisation programme on the performance of informal business

enterprises and on the internally generated revenue in Lagos

State.

Both primary and secondary data were used in this study.

Primary data were obtained through the use of questionnaire. Data

on revenue generation were obtained from secondary data. The 30

local government councils in Lagos State were used as the

sampling frame. Purposive selection was employed as the sampling

procedure, in which 20 local government council areas were

selected. Two hundred questionnaires were administered on urban

informal sector operators among the 20 local government councils

evenly, and Focus Group Discussion was conducted among 20 workers

of Lagos State Internal Revenue Office. Descriptive analysis was

employed with the use of Epi-Info and SPSS. 183

Generally, the socio-demographic characteristics of the

respondents showed that about 75% of the respondents were in

their prime age. The gender distribution of the respondents

indicated that we had more males (64 percent) than females (36

percent). The educational qualification of respondents revealed

that 47.5 percent had secondary education, 27.5 percent had

primary education and 12.0 percent had no formal education. Based

on the religion, understandably majority (68 percent) were

Christians while the remaining 32 percent were Muslims. In the

same vein, the marital status of the respondents showed that 76.5

percent were married and the remaining 23.5 percent were single.

Majority of the respondents (83 percent) had 5 household members,

6 percent had 8 members, 5 percent had 9 members, and 4 percent

had 10 members while 2 percent had 1 member only.

It is shown from the analysis that, average age of the

informal sector businesses captured in the study was 24 years,

coupled with longer working hours each day in order to increase

sales. The analysis also indicated that about 75 percent of those

employed were members of the family. Also, over 77% of the urban

184

informal sector enterprises were carried out from the public

places owned by either the municipal council or state government.

Public enlightenment was the first step taken by the Lagos

State Government in the formalisation process. This was followed

by a review of the structure of the State Ministry of Finance, by

calving out the Lagos State Board of Internal Revenue as a semi

autonomous unit responsible directly to the governor. In

addition, all the informal business enterprises at sight were

registered with the Lagos State Board of Internal Revenue through

the tax officers.

Besides, our analysis indicated that formalisation exercise

had little or no impact on the socio-economic performance of the

informal business enterprises. The rate of patronage has been

rated fair or low among over 80 percent of all the respondents.

Likewise, over 90% of the respondents that were aware of the

basic supports (that is credit facility, skill development and

training) embedded in the exercise, have not benefited from it.

Lastly, it is shown in the data collected from the office of

Lagos State Board of Internal Revenue that, revenue generated

185

internally from the informal sector as a result of formalisation

exercise, only increased in 2008 to 2009. However, it started

declining from 2009 to 2012 with the growth rates of +200%, -

76.5%, -43.9% and -70.2% in 2009, 2010, 2011 and 2012

respectively.

5.2 Recommendation

In view of the major findings derived, the following

recommendations for policy are made;

a. For credibility, acceptability and sustainability of the

programme, provision of credit facility through the Ministry of

Commerce to strengthen the business capital of the operators in

the informal sector, will go a long way.

b. Service delivery among the formalised business would improve

if the Lagos State Government can create skill development and

training supports centre to improve the technical know-how and

basic knowledge of the operator in the informal sector and

c. Put a well structured mechanism in place to curb corruption

among tax officers because the continuous decline in income

generation from the informal sector businesses is unjustifiable.

186

5.3 Conclusion

This study concluded that the contribution of the informal

sector to the growth of the internally generated revenue in Lagos

State is quite increasing. Besides, the findings recognised the

need for provision of credit facility and soft bank loan to

offset the problem of inadequate business capital. And that the

operators in the informal sector will be willing to pay tax

regularly, if appropriate support that can enhance the growth of

their businesses is provided.

5.4 Contributions to Knowledge

The study established that the formalisation of some informal

sector businesses in Lagos State has enhanced internally

generated revenue within the State. However, sustainability of

the source of income is questionable if appropriate supports such

as credit facility, skill development and training are not

provided for the operators in the sector.

5.5 Limitations of the Study

187

Given the stage of development in Lagos State, with its

concomitant level of sophistication in the recording of

socioeconomic data of the informal sector, this study encountered

certain constraints in the process of its execution. The major

limitations experienced in the course of conducting this research

has to do with the long procedures and protocols involved before

getting the official data from relevant government establishments

on the internally generated revenue from the informal sector.

Also, the issue of limited finance did not allow for the

broadening of the scope of study to include other major Local

Governemnt Areas in the State. Nonetheless, these limitations did

not in any way blur the import of the study as concerted efforts

were made to surmount them and ultimately achieve the goals of

the study.

188

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APPENDIX IDEPARTMENT OF ECONOMICS, OBAFEMI AWOLOWO UNIVERSITY, ILE IFE

QUESTIONNAIRE FOR

211

STUDY ON ASSESSMENT OF GOVERNMENT POLICY ON INCOME GENERATIONFROM URBAN INFORMAL SECTOR IN LAGOS STATE

This questionnaire is prepared to gather information on the abovetopic to know the Post Formalization Performance of InformalSector Enterprises in Lagos. The information given will betreated utmost confidentially and strictly use for the purpose ofthis research alone.

Instruction: Please tick (√) where applicable

SECTION A: SOCIO-DEMOGRAPHIC PROFILES OF THE RESPONDENTS

1. Sex: [a] male ( ) [b] Female ( )

2. Age at your last birthday: [a] 20 – 29 years ( ) [b] 30 – 39years ( ) [c] 40 – 49 years [d] 50 -59 years [e] above 60 years( )

3. What is your religion? [a] Christianity ( ) [b] Islam ( )[c] Traditionalist [d] Other ( ) Please specify…………………………………….

4. What is your ethnic group? [a] Yoruba ( ) [b] Igbo ( ) [c]Hausa [d] Other ( ) Please specify ………………………………………

5. Marital status: [a] single ( ) [b] married ( ) [c] widow [d]divorcee [e] separated [f] widower

6. Educational qualification: [a] No formal education ( ) [b]Primary school ( ) [c] Secondary school ( ) [d] Ordinary NationalDiploma/Higher National Diploma ( ) [e] First degree holder ( )[f] Post-graduate degree holder ( )

SECTION B: TYPES, NATURE AND CHARATERISTICS OF THE INFORMALSECTOR COVERED BY THE STUDY

7. The type of occupation of the respondent is ………………………………….

8. How long have you been in this business? …………………………. 212

9. How many days of the week do you spend here? ………………….

10. How many hours of the day do you spend here? ……………………..

11. How many workers do you have? ………………………

12. How many workers here are members of your family? …………………………

13. Where do you get the materials for your work? [a] OwnResources ( ) [b] Raw material purchased from outside ( )[c] Final product purchased and sold ( )

14. Who owns where you are using for your job? [a] Ownhouse/compound ( ) [b] Rented premises ( ) [c] Friend’s orrelative’s place ( ) [d] Public place ( )

SECTION C: IMPACT OF LAGOS STATE FORMALISATION POLICY ON INFORMALSECTOR BUSINESS PERFORMANCE

15. Are you aware of the new government economic policy designed to address the informal sector activities in the state? Yes…..1

No …. 2

16. What do you think the new government economic policy designedto address the informal sector activities in the state, will be about? ………………………………………………………...

17. What do you think can be the benefits of the new governmenteconomic policy designed to address the informal sectoractivities in the state? …………………………………………………

18. Are you aware of the government policy on the creditfacilities scheme for the informal sector operators? [a] Aware () [b] Not Aware ( )

19. Are you aware of the government policy on the skilldevelopment training for the informal sector operators? [a] Aware( ) [b] Not Aware ( )

20. Have you benefitted from the credit facilities scheme for theinformal sector operators provided by government or otheragencies? [a] Yes ( ) [b] No ( )

213

21. Have you benefited from the skill development trainingorganised for the informal sector operators provided bygovernment or other agencies? [a] Yes ( ) [b] No ( )

22. Can you tell me some of the benefits of credit facilitiesscheme for this type of job you are doing? [a] Augment Stock () [b] Increase Profit ( ) [c] Increase Patronage ( )

23. Can you tell me some of the benefits of skill development andtraining for this type of job you are doing? [a] IncreaseDexterity ( ) [b] Retain Patronage ( ) [c] High Sales ( )

Note: Ask questions 24, 25 and 26 if the respondent said ‘Yes’ toeither question 20 or 21, if said ‘No’ skip to question 27;

24. Do you think that the benefit has improved your income? [a]Yes ( ) [b] No ( )

25. What was the range of your monthly income before theformalisation of the informal sector policy? [a] below N20,000 () [b] N21,000 – N40,000 ( ) [c] N41,000 - N80,000 ( ) [d] Morethan N80,000 ( )

26. What is the range of your monthly income after theformalisation of the informal sector policy? [a] below N20,000 () [b] N21,000 – N40,000 ( ) [c] N41,000 - N80,000 ( ) [d] Morethan N80,000 ( )

27. What was the rate of patronage here before the formalisationof the informal sector policy? [a] Low ( ) [b] Fair ( ) [c]High ( )

28. What is the rate of patronage here after the formalisation ofthe informal sector policy? [a] Low ( ) [b] Fair ( ) [c] High ()

29. What was the source of finance for your business before theformalisation of the informal sector policy? [a] Borrowing fromfriends and relatives ( ) [b] Borrowing from bank ( ) [c]Personal income ( ) [d] Ploughing back profit ( ) [e]Government ( )

214

30. What is the source of finance for your business after theformalisation of the informal sector policy? [a] Borrowing fromfriends and relatives ( ) [b] Borrowing from bank ( ) [c]Personal income ( ) [d] Plough back profit ( ) [e] Government ()

APPENDIX II

MODERATOR’S GUIDE FOR FOCUS-GROUP DISCUSSION

215

DEPARTMENT OF ECONOMICS, OBAFEMI AWOLOWO UNIVERSITY,ILE IFE

STUDY ON ASSESSMENT OF GOVERNMENT POLICY ON INCOME GENERATIONFROM URBAN INFORMAL SECTOR IN LAGOS STATE

The information given will be treated utmost confidentially and

strictly use for the purpose of this research alone.

1. What are the different strategies adopted by the Lagos State

Government in formalising the informal sector?

2. What are the measures put in place before the formalisation of

the informal business enterprises?

3. Is there any form of registration before they are formalised?

[a] Yes ( ) [b]No ( )

4. If any, what are the processes of their registration?

5. How long does it take them to do the registration? [a] days (

) [b] weeks ( ) [c] months ( )

6. How much do they pay to do the registration?

7. How do you collect the taxes from them?

8. How many of informal business enterprises have been fully

formalised by this process?216

9. How has their formalisation affected the internally generated

revenue of the Lagos State government?

217