An appraisal of the role of the informal sector in Nigeria’s economy: Evidence from Lagos State
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Background of the study :
The informal sector constitutes a significant portion of Nigeria’s economy, providing livelihoods for millions and contributing to overall economic resilience. In Lagos State, the informal sector is particularly prominent, with small-scale enterprises, street vendors, and informal services forming the backbone of local economic activity (Balogun, 2023). Despite its importance, the informal sector often operates outside formal regulatory frameworks, leading to challenges in taxation, regulation, and data collection. Recent studies have highlighted both the benefits and drawbacks of an expansive informal economy. On one hand, it fosters entrepreneurship, job creation, and economic inclusivity; on the other hand, it may limit access to formal credit and social security (Chinonso, 2024). Moreover, the interplay between formal and informal sectors influences economic growth, innovation, and fiscal policy outcomes (Emmanuel, 2025). This research aims to appraise the role of the informal sector in Lagos State by exploring its contribution to economic activity, employment, and overall development. The study combines empirical data analysis with qualitative insights from stakeholders, providing a comprehensive evaluation of the informal sector’s impact on Nigeria’s economy (Balogun, 2023; Chinonso, 2024).
Statement of the problem
Despite the significant contribution of the informal sector to Lagos State’s economy, there remain challenges in its integration into the formal economic framework. The lack of regulatory oversight, limited access to finance, and inadequate support mechanisms hamper the sector’s growth and its ability to contribute fully to economic development (Emmanuel, 2025). This disconnect has resulted in lost tax revenue and persistent vulnerabilities for informal workers, who often lack social security and legal protections. This study seeks to identify the factors that hinder the effective formalization of the informal sector and to evaluate its impact on overall economic performance in Lagos State, addressing the gap between its potential and actual contributions (Balogun, 2023).
Objectives of the study:
- To evaluate the economic contribution of the informal sector in Lagos State.
- To identify challenges faced by informal enterprises.
- To recommend strategies for integrating the informal sector into the formal economy.
Research questions:
- What is the contribution of the informal sector to Lagos State’s economy?
- What challenges limit the growth of informal enterprises?
- How can policies better integrate the informal sector with the formal economy?
Research Hypotheses:
- The informal sector significantly contributes to economic activity in Lagos State.
- Regulatory challenges hinder the formalization of the informal sector.
- Policy interventions can enhance the integration of informal enterprises into the formal economy.
Significance of the study
This study is significant as it investigates the critical role of the informal sector in Lagos State’s economy, highlighting its contributions and the challenges it faces. The findings will inform policymakers on strategies to harness the potential of the informal sector, improve revenue collection, and enhance social protections for informal workers. By bridging the gap between informal and formal economic activities, the study contributes to broader economic development initiatives and policy reforms (Balogun, 2023).
Scope and limitations of the study:
This study is limited to appraising the role of the informal sector in Nigeria’s economy with evidence from Lagos State only.
Definitions of terms:
- Informal Sector: Economic activities that are not regulated by the state and operate outside formal systems.
- Formalization: The process of integrating informal economic activities into the regulated, formal economy.
- Economic Contribution: The overall impact of a sector on economic growth, employment, and revenue generation.
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