Nigeria’s sweeping economic reforms are confronting a structural problem that monetary and fiscal measures alone cannot solve: most employment remains outside the formal economy.
The government’s reform programme, including foreign-exchange liberalisation, petrol-subsidy removal and tax reform, is intended to improve market efficiency, strengthen public finances and create a more predictable environment for investment. But the scale of Nigeria’s informal economy complicates how far those policies can reach.
The National Bureau of Statistics said informal employment accounted for 93.0% of total employment in the second quarter of 2024, up marginally from 92.7% in the first quarter. The figure covers workers whose jobs do not meet the criteria used by the NBS to classify employment as formal.
That distinction is critical. Nigeria’s economy is not simply divided between large corporations and tax-evading small businesses. It includes millions of self-employed traders, farmers, artisans, transport operators and other workers whose livelihoods operate with limited formal registration, documentation or access to institutional finance.
The result is a difficult policy equation. Government can digitise tax administration and improve compliance among existing taxpayers, but expanding the revenue base requires bringing more economic activity into systems where businesses and transactions can be identified and supported.
The African Development Bank has made broader domestic resource mobilisation a central issue for African economies, arguing that weak tax systems and large informal sectors constrain governments’ ability to finance development. Its 2026 outlook projects Nigeria’s real GDP growth at 4.1% in 2026 and 3.7% in 2027, indicating an improving growth outlook but not eliminating the structural fiscal challenge.
Nigeria’s reform challenge is therefore less about forcing every informal operator into the tax net immediately and more about making formalisation economically attractive.
Access to affordable credit, digital payments, business registration, public procurement and social protection can give small businesses practical reasons to enter the formal economy. Enforcement without those incentives could instead increase compliance costs for businesses operating on thin margins.
Technology may provide part of the bridge. Digital financial services and fintech platforms can create transaction records and connect previously underserved businesses to formal financial institutions. But digital adoption should not automatically be equated with formalisation.
For policymakers and investors, the more revealing indicators will be changes in informal employment, business-registration rates, SME access to finance, digital-payment usage and the number of businesses entering the formal tax system.
Nigeria’s reforms may be improving the architecture of the formal economy. The larger test is whether that architecture eventually reaches the informal economy where the overwhelming majority of workers earn their livelihoods.
Until that gap narrows, the country risks achieving stronger formal-sector institutions without fully unlocking the productivity, revenue and investment potential of the broader economy.
