26 April, 2022

Fixing The Missing Middle: A Dissect Of Social Protection And Coverage Of Nigeria’s Informal Sector

The Nigerian informal sector is dynamic, large, and heterogeneous. It consists of units engaged in the production of goods and services with the primary objective of generating employment and income to the persons concerned. This sector operates at a low level, on a small scale, with little or no division of labour and capital as factors of production. The informal sector includes enterprises that are not officially registered and do not maintain a complete set of accounts; and workers who hold jobs lacking basic social and legal protection and employment benefits. It consists of many people who, though have no formal jobs but daily engage in some form of activities that enabled them to survive. They operate as self-employed, hawkers, subsistence farmers, small scale manufacturers, service providers such as hairdressers, private taxi drivers and carpenters wage earners, scavengers, shop owners, shop keepers and several other activities unregulated by the state.
Workers in the informal sector are defined as those who work in informal jobs, whether carried out in formal sector enterprises, informal sector enterprises, or households; including employees holding informal jobs; employers and own-account workers employed in their own informal sector enterprises; members of informal producers’ cooperatives; contributing family workers in formal or informal sector enterprises; and own-account workers engaged in the production of goods for own end use by their household.
The informal sector contributes a significant portion to the Nigerian economy. Despite its importance, the informal sector is often overlooked and misunderstood, with some viewing it as transient, and expected to eventually be absorbed into the formal economy. Today there is no unanimous perspective with regard to the informal economy. Some take the view that the informal sector encourages fraudulent activities that results to the loss of revenue from taxes, weakens unions, creates unfair competition, leads to a loss of regulatory control, reduces observance of health and safety standards, amongst others. However, a fast-growing view is that informal economy offers significant job creation and income generation potential, as well as the capacity to meet the needs of poor consumers by providing cheaper and more accessible goods and services.
With the significant contribution of informal sector to the Nigerian economy, an undeniable truth is that any notion of economic development in the country is one that hugely depends on the state of affairs of the informal sector. Sustainable and inclusive economic development and job creation are unlikely to be achieved unless the potential and needs of the informal sector are adequately considered. Consequently, efforts must be made to understand the dynamics of the sector and how best to tap the latent potential that lies within.
More than 60 percent of the Nigerian workforce is in the informal sector. Most of them struggle daily to make ends meet in their aspiration to obtain decent work, rights, and dignity. Within their domains, few are partially socially protected while many do not enjoy access to social protection at all.
The lack of social protection of workers in the informal sector is a major source of vulnerability because these workers cannot count on access to health care and a basic level of income security. As a result, many of them are locked in a vicious cycle of vulnerability, poverty, and social exclusion, which constitutes an enormous challenge not only to the individual welfare and enjoyment of human rights, including the right to social security, but also to Nigerian’s economic and social development. Informal workers’ lack of social protection is usually associated with their lack of coverage through contributory mechanisms (social insurance such as ‘Employees Compensation Scheme’ as managed by Nigeria Social Insurance Trust Fund).
The Nigeria Social Insurance Trust Fund (NSITF) aim to implement nationally appropriate social protection systems and measures for all and achieve substantial coverage of the poor and the vulnerable. This laudable venture will gradually reduce poverty, hunger, ensure good health, promote wellbeing, sustain inclusive economic growth, and promote peace, justice, and strong institution.
The Management Board of the NSITF has identified the provision of protection to workers in the informal sector through the Employees Compensation Scheme: a social insurance contributory mechanism. Predominantly, the two types of social security schemes are a.) Social insurance and other contributory provisions for those in the formal economy and b.) poverty-targeted social assistance or “safety net programmes” for the poor. Workers in the informal economy tend to be excluded from both types of coverage- those for workers in formal employment and those for the poor. This lack of protection has been described as the “missing middle”.
In a quest to fix the missing middle, the Management Board of NSITF extends the benefits of Employees Compensation Scheme (ECS) to the workers of the informal sector. Consequently, in the event of incidents such as accident, injury, diseases and death, the subscriber/contributor from the informal sector will benefit from the Employees Compensation Scheme. The benefits that such subscribed worker will be entitled to are as follows:

  • Medical Expenses Refund (MER)
  • Loss of Productivity (LOP)
  • Provision of Prothesis/Rehabilitation
  • Vocational/Medical Counselling

The leadership of the various associations and unions that make up workers in the informal sector are recognized as the employers to workers in the informal sector. This arrangement will make the following plans possible:

  1. Easy access of informal sector workers to subscribe to Employees Compensation Scheme and enjoy the benefits the schemes offer through the leadership of the association they belong.
  2. Robust platform for detail awareness/sensitization on ECS for members of each registered association/union in the informal sector.
  3. Provision of space for the establishment of NSITF Service outpost at various business premise/area
  4. Increase in the registration of informal workers with constituted associations/unions
  5. Prompt and consistent payment of ECS contribution by each member of their Association/Union.
  6. Prompt ECS registering, data capturing of all contributing members and submission of same to NSITF.
  7. Prompt payment of claims and compensation to workers.
  8. Ensures that every incident is reported immediately to the nearest NSITF office/Outpost (as stipulates in ECA, 2010).
How To Subscribe to the ECS
To achieve the Employees’ Compensation Scheme (ECS) in the Informal Sector/economy, the employer (who is also the protected person or worker or employee) will be required to pay certain percentage of his/her monthly earnings as monthly contribution for himself/herself as well as his/her worker(s) (where applicable) following his/her enrolment into the ECS and that of his/her worker(s) (where applicable).
Because the Informal Sector comprises mainly of self-employed workers whose monthly income varies, the contribution from the Informal Sector worker will be based on individual monthly income. The Informal Sector can be regarded as a “high risk sector” since it is not guided by any Safety Laws or Standards.
The Employees’ Compensation Act, 2010 Section VI, Sub-section 33(1) and (2a&b) gives NSITF the power to determine the appropriate percentage of contribution for a particular sector considering the level of risk involved. Below shows the various categories of Informal Sector Workers based on the monthly earnings and the percentage of their monthly earnings that will be contributed into the Scheme on monthly basis.
Below is a categorization of the Informal Sector Workers in accordance with their monthly earnings and the expected percentage for contribution into the Employees Compensation Scheme on monthly basis.

Contributions To the Scheme on Monthly Basis

  • N1 - N5,000  will contribute 2% of Monthly Income
  • N5,001 - 10,000 will contribute 2.5% of Monthly Income
  • N10,001 - N15,000 will contribute 2.7% of Monthly Income 
  • N15,001 - N30,000 will contribute 2.8% of Monthly Income
  • N30,001 and above will contribute 3% of Monthly Income

Roles Of Individual Informal Sector Worker

It is required that each worker in the informal sector do the following as at when due:

  1. Makes himself or herself available for ECS enrolment at various Service Delivery centers/outpost of the NSITF. This gesture will help to provide the needed accurate information for the ECS enrolment
  2. Make ECS contribution timely through remita platform available in all banks and visit NSITF Service outpost to convert the remita receipt into receipt
  3. Attend all the ECS and Occupational Safety & Health awareness programs organized by NSITF from time to time
  4. Report any incident to the leadership of his/her Association/Union and the nearest NSITF as soon as it occurs for necessary action by NSITF


Informal employment represents most of the labour force in many countries including Nigeria. ECS gives informal sector access to social protection and its benefits. Therefore, all hands must be on deck to ensure that the benefits of Employees’ Compensation Scheme, which is one aspect of Social Protection is provided to all Informal Sector Workers. ECS will help reduce vulnerability in the Informal Sector through the collective efforts of both the leadership of the various Associations/Unions, the Informal Sector workers themselves and the Government (represented by NSITF)