Nigeria’s economy has faced sustained pressure in recent years, shaped by macroeconomic instability, rising inflation, exchange rate volatility, fuel subsidy removal and declining real incomes. These challenges have deepened unemployment and underemployment, forcing millions of Nigerians to rely increasingly on the informal sector for survival. The informal sector, which contributes an estimated 60 to 65 percent of national employment and a significant share of gross domestic product, remains the backbone of economic activity for low- and middle-income households. At the same time, Nigeria has witnessed the rapid expansion of the digital economy. Advances in mobile telecommunications, internet penetration, financial technology (fintech), social media, and online platforms have altered how goods and services are produced, exchanged, and consumed. For the informal sector, the digital economy has emerged as both a coping mechanism and a source of new vulnerabilities, particularly within a strained economic environment. This piece examines the challenges of the digital economy on Nigeria’s informal sector, highlighting opportunities, constraints, and policy implications.
The informal sector in Nigeria encompasses economic activities that operate outside formal regulatory and tax frameworks. These include petty trading, retail market, smallholder farming, agro-processing, artisanal services, informal transport, home-based enterprises, and casual labour. Despite its informal nature, the sector plays a critical role in employment generation, poverty reduction, and social stability. Under current economic strain, the informal sector has absorbed workers displaced from the formal economy and graduates unable to secure salaried employment. However, informal enterprises are often characterised by low productivity, limited access to finance, absence of social protection and exposure to economic shocks. These structural weaknesses shape how informal operators engage with digital technologies.
Nigeria’s digital economy is driven by widespread mobile phone adoption, expanding internet access and the growth of fintech and platform-based services. Digital payment systems, social media commerce, ride-hailing platforms, logistics services and online marketplaces have transformed everyday economic interactions. For informal sector participants, these technologies offer new ways to reach customers, receive payments and organise work. The intersection between the digital economy and the informal sector has become especially significant under economic strain, as traditional business models struggle with reduced consumer purchasing power and rising operating costs.
One of the most significant benefits of the digital economy is expanded market access. Informal traders and service providers increasingly use platforms such as WhatsApp, Facebook, Instagram, and online marketplaces to promote products and services. This digital presence reduces reliance on physical locations and foot traffic, enabling sellers to reach customers across cities and regions. For small businesses facing declining local demand due to inflation and reduced disposable income, digital marketing has provided an alternative sales channel and improved resilience.
Fintech innovations have improved financial inclusion for informal workers who were previously excluded from the formal banking system. Mobile money, USSD banking, POS terminals, and digital wallets have made it easier to send and receive payments, manage cash flow, and reduce the risks associated with cash handling. Digital transaction records also create informal financial histories, enabling access to micro-credit, savings schemes and insurance products. In a strained economy, such financial tools help informal businesses manage liquidity and cope with income volatility.
Digital platforms have created new income opportunities within the informal sector. Ride-hailing services, delivery platforms, online freelancing, content creation and digital retail have absorbed a growing number of unemployed youths and underemployed workers. For many households, digital work supplements traditional informal activities, providing diversified income streams that reduce vulnerability to economic shocks.
The digital economy has reduced entry barriers for informal entrepreneurship. Starting an online business often requires limited capital compared to establishing a physical shop. With a smartphone and internet connection, individuals can engage in trading, marketing, and service provision. This low-capital entry model has been particularly beneficial for women and young people, allowing them to operate home-based enterprises and balance economic participation with domestic responsibilities.
Despite growth, digital participation remains uneven. Limited internet connectivity, unreliable electricity, high data costs and low digital literacy exclude many informal workers, especially in rural areas and low-income urban communities. Older traders and women with limited education are disproportionately affected. As economic strain increases the cost of living, spending on data and digital tools becomes less affordable, widening inequality within the informal sector.
Many informal workers engaged in the digital economy depend on platforms they do not control. Changes in platform algorithms, commission structures, or account policies can abruptly disrupt income. Ride-hailing drivers, delivery riders, and online vendors often face unpredictable earnings and limited bargaining power. This dependency creates a form of digital precarity, where workers remain informal but are subject to platform-imposed rules without adequate protections.
Inflation has raised the cost of smartphones, repairs, data subscriptions, POS maintenance and power generation. For low-margin informal businesses, these expenses reduce profitability and threaten sustainability. Additionally, exchange rate volatility increases the cost of imported digital devices and services, further constraining adoption.
While digital platforms generate employment, many jobs lack formal contracts, health insurance, pensions or income security. In a strained economy, this informalisation of digital labour may deepen economic insecurity rather than promote inclusive growth.
As government revenues come under pressure, there is increasing interest in taxing the digital economy. However, poorly designed or aggressive taxation can discourage digital adoption among informal operators, pushing them back into cash-based systems.
Trust deficits between informal workers and regulatory institutions remain a major challenge. Without clear benefits, such as access to credit, social protection, or infrastructure, digital taxation risks undermining livelihoods rather than expanding the tax base sustainably.
The digital economy has created new opportunities for women and youth, particularly through flexible, home-based work and online commerce. However, unequal access to education, devices, and digital skills means that benefits are not evenly distributed. Women in low-income households may face additional barriers related to time constraints, social norms and access to capital, potentially reinforcing existing inequalities within the informal sector.
To be continued
Kelechi C. Udochukwu is a fintech analyst who has worked in retail, investment and microfinance banking institutions. He has over 30 years managerial experience. Send feedback and responses to comment@businessamlive.com
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