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COVID-19: Tapping from Nigeria’s underground economies


Zainab Ahmed

Nigeria’s economy is bigger than what we see and feel in statistics. This is because the country’s huge underground economy is hardly adequately taken account of informal data collection, data mining and data analysis. It is even difficult to collect data in the underground economy because part of its characteristics is secrecy while others are deceitfully tagged illegal even when the services are practiced and patronised in the open. How do you tag a sex worker as running illegal business when they render services openly to lawmakers and law enforcement agents among others, or, to producers and sellers of ‘weeds’ when many politicians provide funds for their thugs to purchase the products for the business of thuggery. Other activities are regarded as underground because lack of fund for data collection due to spatial distribution and under estimation of each unit’s revenue relative to cost of counting makes it expensive to invest or include them in census. So long as these activities are not captured informal data collection, we do not reckon with their existence. This should not, however, stop us from estimating them as part of economic activities or refer to them as the underground economy.

Data collection has always been taken with levity in most institutional settings. It should not be surprising for example, if a university cannot give accurate figures of its staff and students in terms of ratio of male to female by level, broad and specific discipline, age bracket, etcetera even when there is a department of statistics in the university. We can imagine a situation in which the amount of money spent on feeding school children is given but we cannot provide figures and names of the students fed within a given period of time to serve as reference for future. How can we be sure that the amount spent was not expended on ghost students? It is difficult to go to a local government office and get the names of the streets within that local government not to mention the number and names of micro and small-scale businesses in the local government area. As explained in an article in an earlier article elsewhere, we would have used the opportunity of distribution of palliative materials to gather data on some micro and small businesses thorough their associations or even personal appearance when collecting or distribution the share of the gifts to them. But we are still in the period of palliatives. By and large however, there is the underground financial hub yet to be fully tapped.


The amount of fund in the underground economy is enough to run this country and the economic activities in that economy are sufficient to put to shame the information from the World Bank and IMF that Nigerian economy will shrink by five or three or seven percent at the end of a particular year. For instance, during the Nigerian civil war, Nigeria did not import food from other countries yet nobody was seen, outside war area, scavenging food from dustbins despite the fact that formal production was hugely disrupted nationally. Nigeria did not borrow money to prosecute the war or to pad government expenditure, yet the economy started bouncing back immediately the war was over and even before the quadrupling of oil prices in 1974. At that time, the so called underground economy was relatively small compared to the present size of the market now, yet it sustained the living standards. How much of our yams tubers, pepper, onions and other food items are produced through agricultural mechanization and enter the data base of the Nigerian Bureau of Statistics, yet we eat yam and stew or fried eggs without hindrance so long as you have your money, except under the recent lockdown when movements were restricted. What constitute this underground economy?

The formal economy can be broadly divided into two, namely production or real sector and the financial sector in which the latter oils the activities of the former through provision of credits and exchange of money within the context of easing payment system. The underground economy can equally be so identified. The production sector consists of the millions of microbusinesses not captured in our statistics books. The rural smallholding farmers, the sellers by the road side and in numerous streets and the informal markets, the mechanics, vulcanizers, re-wire and panel-beaters in the dispersed mechanic villages and even in underdeveloped parcels of lands spread in nooks and crannies in all states of the federation, the tailors or as they want to be called, the fashion designers in nooks and crannies of our dear country; the traditional and imported spiritual enterprises (churches and mosques) as well as, sex workers, hair dressers, party planners, bakers and bakeries, and the like spread all over the space. They are too numerous to be identified and counted by under-funded Statistics Bureau but they contribute significantly to prevent the economy from running aground.

The underground financial sector is multifarious. There exist informal sector moneylenders, unregistered cooperative societies, thrift collectors, rent collectors and the biggest subsector of the sector – the stolen funds unit. Over the years, there have been reports of monies, both local and foreign currencies, found inside unused buildings, flats, septic tanks and other hidey-holes. The volume of these funds in the underground economy is sufficient to run the Nigerian economy without resorting to foreign loans and the owners are every ready to provide such capital when requested even at low returns. Recent history of floating of federal government bonds has shown that there is always over-subscription despite continuous reduction in interest or service rates. The last Sukuk bond at 11.2% was oversubscribed by over 400% despite the fact that the return is below inflation rate of over 12% and the previous Sukuk bond rate of about 14%. That is, the request for about N100 billion yielded over N400 billion! Where did that money come from?


Under normal theoretical economic rule, it is absurd to save money for long term when prices are rising except if such money is free of use for projects in the nearest future and would earn no returns elsewhere. If the Central Bank checks its record, it should be clear that large proportion of the money invested in bonds in recent time did not pass through banking system transactions. Of course, banks also engage in warehousing some of the stolen funds since the owners would not be demanding for returns on the principal. The huge sums of stolen money remain in underground or hidden because of the existence of BVN which exposes every official lodgment and carrying them abroad can be very risky because of international law on money laundering. It is so much that the CBN can only give an estimate of money supply in the economy, yet the existence of such money has been disruptive to the plans in the formal sector particularly in fueling speculative activities in the black market arm of the foreign exchange market.

Instead of borrowing money from abroad in foreign currencies to intervene in the activities of micro, small and medium scale enterprises, the Debt Management Office (DMO) or the Ministry of Finance should float local bonds specifically for such intervention. There is no doubt that such fund will be oversubscribed and it is a cheaper form of borrowing. It not only mops up liquidity in the hiding places but puts less pressure on repayment since it is in the local currency whereby the DMO can return to the market for fresh loan to offset the old or a maturing loans. It will be mere transfer of funds from surplus to deficit areas within the economy. No pressure on foreign exchange market.

Most of the producers in the informal sector do not use imported materials for their production. Rather, they rely on each other to produce and thus raise the multiplier effects of home source interventions. The main problems these local microbusinesses have had to deal with is electricity generation and there are many local metal fabricators that produce crude but effective generators for them. The huge strength, humongous value and massive volume of outputs from the so called informal or underground economy cannot be imagined unless one is involved in studying the sector over a long period as we have done. Thus, they are underestimated at our own peril. Intervening in the sector is more than worth in intervening in the formal sector given the massive employment generated by the sector. More importantly, the intervention does not require foreign loans but mobilisation of domestic financial resources from the underground financial sector through use of formal financial instruments. Most middle and low income public sector workers depend on loans from numerous cooperatives to send their children to good schools, build houses, buy vehicles, for wedding and other ceremonies, etc. Do these informal cooperatives fund and activities go into formal statistics as national savings?


Large proportion of foreign loans that we contract promotes production and employment in countries where such loans are used to buy machinery and equipment later transported to Nigeria and paid for by our creditors as well as monies paid for loan facilitators and technical partners.

That is why many studies on Africa have found that foreign loans have not been able to engineer growth like loans sourced internally. A study by the Economic Commission for Africa (ECA) on domestic sources of project financing in 2018 did not take cognisance of this underground economy, possibly because of absence of data and the so call underground or illegal tag imposed on such finances. Such financial subsector can be found in numerous African or developing countries where public office holders help themselves with public funds in form of corruption.

A number of times I have suggested that one significant way of reducing liquidity arising from stolen funds in the Nigerian economy is for the CBN to change or swap colours of naira within limited time for exchange in the banks. It is quite understandable why such exercise could not be adopted since it will affect even those who are to implement the policy. However, we can make such stolen funds more productive by floating domestic bonds in the mode of the Sukuk Bond, MSMEs Intervention Bonds, Education Development Bond, et cetera at fairly attractive returns on investments. Those people are looking for where to invest their loots and that is why they have bought landed property and bought all foreign currencies making the exchange rate expensive. At the end, we will find that the action will serve as relief to the present where we run after foreign loans that become big burden in future. Let us rely on our ingenuity and ‘local’ economic sense that make it possible for my mechanic of ten years to have two big houses, and two children in the university without borrowing from his customers or stealing money from government!
Sheriffdeen Tella, Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State.


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