poverty in the informal sector of kwara state nigeria

Poverty in the Urban Informal Sector of Kwara State, Nigeria 2011

Ijaiya, GT., Bello, RA., Arosanyin, GT., Oyeyemi, GM., Raheem, UA and Yakubu, AT

CHAPTER 1

INTRODUCTION

1.1. Statement of the Problem

The activities of the people operating in the informal sector in most urban settlements in less

developed countries cannot be ignored since they play significant role in the development of

the economies of these countries. For instance, the sector employs between 35 percent and 65

percent of the labour force; and contributes between 20 percent and 40 percent of the Gross

Domestic Product (GDP) in less developed countries (Braun and Laoyza, 1994). In Africa,

the sector has grown to be a major source of income to a large population of urban poor and

women. In fact, about 400 million African workers earn their livelihood in the informal sector

and income generated supports additional 200 million others to survive (Grey-Johnson,

1992). In Nigeria, the sector is known to have contributed about 58 percent of the nation‘s

Gross Domestic Income (GDI) and provided over 50 percent of urban jobs. The sector also

provides most of the population with a means of livelihood or essential supplementary

income. Most probably the sector is also the only reliable source of livelihood for women and

the poor for whom the formal sector has no accommodation for economic upliftment

(Fapohunda, 1978; Fapohunda and Lubell, 1978; Fapohunda, 1985; Ariyo, 1996, Schneider,

2002, Ijaiya and Chika, 2004; Arosanyin, et.al 2009).

Despite its contribution to economic development, the sector is still regarded as the sector

where the bulk of the poor are found. Scientific studies on the prevalence of poverty in the

informal sector are still scanty. It is therefore difficult for government and policy makers to

provide pragmatic solutions to the poverty situation in the sector. In order to provide

objective solution to the poverty situation in the sector in Kwara State, this study becomes

imperative. The basic questions in this study are: To what extent are the people operating in

the urban informal sector of Kwara State poor? What are the causes and consequences of

poverty among the people operating in the urban informal sector of Kwara State? What

intervention measures are needed in addressing the problems of poverty in the urban informal

sector of Kwara State?

1.2. Objective of the Study

The main objective of the study is to examine the rate of poverty in the informal sector of

Kwara State, Nigeria. The study has the following objectives:

To examine the extent of poverty in the urban informal sector of Kwara State by

measuring its prevalence.

To determine the causes and the consequences of poverty in the urban informal

sector of Kwara State.

To proffer intervention measures that can be used in addressing the problems of

poverty in the urban informal sector of Kwara State.



1.3. Justification for the Study

In Nigeria, significant efforts have been made to reduce poverty, but what some scholars

found difficult to comprehend is its continuing and persistent increase1 despite the different

strategies suggested and put in place by various governments, non-governmental

organizations, community-based organizations and individuals at reducing it. The failure of

these strategies (e.g. the Better Life for Rural Women Programme, the Family Support

Programme, the Operation Feed the Nation, the Green Revolution, the Directorate for Food,

Road and Rural Infrastructure, the Integrated Rural Development Programme, the Mass

Transit Programme, the National Directorate for Employment and the recently introduced

National Poverty Eradication Programme) can be traced to the lack of continuity in the

implementation of the programmes. This lack of continuity have inhibited progress; and

created a climate of uncertainties, budgetary constraints, mismanagement of the

projects/programmes funds and corruption. Most importantly, the poor have not been

adequately served by these programmes. Targeting the poor requires identification of who is

poor? Why are they poor? And where do they live?

Drawing from the above, it becomes important that an analysis of poverty in order to capture

those that are poor and why they are poor in the urban informal sector of Kwara State is

carried out. Results from this study would be useful in understanding and designing

appropriate poverty reduction measures by the government, its agencies and development

partners for the people operating in this sector, which is hoped would fulfilled some of the

aspirations of State‘s Economic Empowerment Development Strategy (SEEDS) and those of

the Millennium Development Goals that include, among others, eradication of extreme

poverty and hunger by 2015.

1 In Nigeria, the incidence of poverty that was 28.1 percent in 1980, increased to about 64 percent in the year

2004, with rural poverty increasing from 22 percent in 1980 to 68 percent in 2004. Similarly, Nigeria‘s rank in

the Human Development Index remained low, being the 152nd

out of 175 countries. The nation‘s life expectancy

at birth that was 51.9 in 2001 also dropped to 44 years in 2005 (ADB, 2003; FOS, 2004; FOS various years;

World Bank 2005ab, ADB 2010).



CHAPTER 2

INFORMAL SECTOR AND POVERTY

2.1. The Informal Sector

The earlier studies on the informal sector can be traced to the studies by the International

Labour Organization (ILO) in Kenya in 1972 and Keith Hart in Ghana in 1973 (ILO 1972;

Hart 1973; Amin 2002; Chen, et.al 2002; ILO 2002a; ILO 2002b; Thomas 2002). However,

in theory the emergence of the study on the informal sector can be linked to Lewis (1954) and

Hirschmann (1958) which conceptualized economic development as the emergence and

growth of manufacturing sector (the ―modern‖ sector) through the absorption of labor being

freed from agriculture (the ―traditional‖ sector), due to the more efficient means of

production in the former (cited in Todaro 1987; Usman and Ijaiya 2000; Potts 2007;

Arosanyin, et. al 2009; Srinivas 2009).

The study by Rogers and Swinnerton (2004) saw the emergence of the sector as a result of

undesirable economic distortions and unfavourable policies of government. Studies by

Loayza (1994, 1997), Azuma and Grossman (2002), Xaba et.al (2002) saw its emergence from

the growth of urbanization and the problems that come with it- unemployment and low skills,

heavy burden on taxes fees, labour market restrictions and inefficient government institutions.

The studies also shows how the informal sector arises in a neoclassical model when some

firms choose to remain small to enjoy legal exemption from a mandated minimum wage

policy and tax which distorts resources away from first best allocations.

2.1.1. Definition and characteristics of Informal Sector

The informal sector covers a wide range of labour market activities that combine two groups

of different nature. On one hand, the informal sector is formed by the coping behaviour of

individuals and families in an economic environment where earning opportunities are scarce.

On the other hand, the informal sector is a product of rational behaviour of entrepreneurs that

desire to escape state regulations.

The two types of informal sector activities can be described as follows:

Coping strategies (survival activities): casual jobs, temporary jobs, unpaid jobs,

subsistence agriculture, multiple job holding;

Unofficial earning strategies (illegality in business): (i) unofficial business activities:

tax evasion, avoidance of labour regulation and other government or institutional

regulations, no registration of the company; and (ii) underground activities: crime,

corruption - activities not registered by statistical offices (GDRC 2009).

The simplest definition of informal economic activity is any exchange of goods or services

involving economic value in which the act escapes regulation of similar such acts (Wikipedia

2008). ILO (2009) refers to it as all economic activities by workers and economic units that

are – in law or in practice – not covered or insufficiently covered by formal arrangements.

Their activities are not included in the law, which means that they are operating outside the

formal reach of the law; or they are not covered in practice, which means that – although they

are operating within the formal reach of the law, the law is not applied or not enforced; or the

law discourages compliance because it is inappropriate, burdensome, or imposes excessive

costs (see also Bernabè, 2002; Howell 2002; Musiolek 2002; Thomas 2002; Hussmanns



2004; Daza 2005; Adeyinka 2006). Blaauw, (2005) also defined the informal sector as

unorganized, unregulated and mostly legal but unregistered economic activities that are

individually or family owned and use simple, labour intensive technology.

The informal sector often referred to as subterranean economy, underground economy,

shadow economy, non-corporate enterprises, micro-enterprises and petty producers is also

defined as a large volume of self employed in developing countries who are engaged in

small-scale intensive work such as tailoring, food preparation, trading, shoe repairing, etc.

These people are often regarded as unemployed or underemployed as they cannot be included

in the national employment statistics but they are often highly productive and make a

significant contribution to national income. Their work in general is characterized by low-

capital-output ratio, that is, the ratio of the level of equipment or capital relative to output is

low (Hart 1972; Trager 1987; Steams 1988; Sanyal 1991; Pearce 1992; Cheaker and Nangbe

1998; Wickware 1998; Ijaiya and Umar 2004; Soares, 2005).

Fluitman (1989) saw the informal sector as a heterogeneous phenomenal which encompassed

a wide variety of economic activities which tend to be overlooked in statistics including all

sorts of manufacturing activities, construction, trade and commerce, repair and other services.

For example, informal sector workers made beds, pots and pan, they repair watches, cars and

radio, they write letters, lend money, run restaurant, and barber-shops in the side walk, they

transport goods and people on their motorbikes, they sell fruits and cooking oil and cigarettes

by the piece. Informal sector activities are mostly carried out in small units owned and

operated by one or a few individuals with little capital, they are usually labour intensive

activities which result in low quality but relatively cheap goods and services (see also Loayza

1997).

Many of the names by which the ‗informal‘ sector is called (black market, casual work,

clandestine activities, community of the poor, family-enterprise sector, hidden sector,

informal economy, informal opportunities, intermediate sector, invisible sector, irregular

sector, lower-circuit of the urban economy, non-plan activities, non-westernized sector, one-

person enterprise, parallel economy, people's economy, petty commodity production,

shadow economy, trade-service sector, transient sector, underground economy, unobserved

economy, unofficial economy, unorganized sector, unrecorded economic activities,

unremunerated sector, unstructured sector, urban subsistence sector), essentially characterizes

it in terms of what it is not: it is not the formal sector (non-formal), it is not controlled by the

government (non-plan, hidden, unofficial, unrecorded), it is not legal (illegal, black, shadow)

and it is not taxable (unrecorded, parallel). But recent research and exploration on the issue

has resulted in a more benign approach, where the names and definitions have used the

characteristics of the sector itself (casual, family enterprise). Some emphasize its poverty

focus (subsistence, petty commodity, and one-person enterprise) as well as its 'temporary'

nature (transient, intermediate). In reality, it is all of these taken together, that define all the

characteristics of the sector (GDRC 2009).

2.1.2 Characteristics of enterprises in the informal sector

As observed by Women in Informal Employment-Globalizing and Organizing (WIEGO)

(2009) early debates regarding the causes and characteristics of the informal sector were

crystallized into four dominant schools of thought namely the dualist school; the structuralist

school; the legalist school and the il-legalist school.



The characteristics of the informal sector include among others: ease of entry; predominant

use of local resources, family ownership of the enterprises; small scale of operation;

adaptation of largely labour-intensive technology; acquisition of skills mainly outside the

formal system of education and training; and operation in an unregulated competitive market

(ILO, 1972). The informal sector characterised to comprise these economic enterprises which

employ less than certain number of persons (e.g. 5 or 10, depending on the country's official

procedures) per unit, and which simultaneously satisfy one or more of the following criteria:

(a) it operates in open spaces, (b) it is housed in a temporary or semi-permanent structure, (c)

it does not operate from spaces assigned by the government, municipality or private

organizers of officially recognized market-places, (d) it operates from residences or

backyards, and (e) it is not registered. The ILO/ICFTU international symposium on the

informal sector in 1999 proposed that the informal sector workforce can be categorized into

three broad groups: (a) owner-employers of micro enterprises, which employ a few paid

workers, with or without apprentices; (b) own-account workers, who own and operate one-

person business, who work alone or with the help of unpaid workers, generally family

members and apprentices; and (c) dependent workers, paid or unpaid, including wage

workers in micro enterprises, unpaid family workers, apprentices, contract labor, home

workers and paid domestic workers (El-Mahdi, 2002; Hussmanns, 2004; Daza, 2005; Slack,

2006; GDRC, 2009).

Looking at the enterprise side, there are also a number of defining features, which

characterize these businesses in Africa. These include: low set up costs and entry

requirements, which are presented above as key factors behind informalization. Operations

are typically on a small scale with only a few workers. Skills required for the business

activities are usually gained outside formal education. The production of goods and services

is labour intensive. Again turning to the Doing Business Database compiled by the World

Bank, it is interesting to consider the heterogeneity in some of the key business factors behind

the development of the sector in Africa. The database contains figures for various indicators

representing the ease of starting up a business, hiring and firing workers, registering property,

getting credit, protecting investors, enforcing contracts, licensing requirements and closing a

business. For example, based on certain assumptions regarding the nature and location of the

business, sub-Saharan enterprises are required to complete 11 procedures on average in order

to establish a new business, the equal highest amongst all regions. This process takes over 63

days in sub-Saharan Africa, the longest of any region. The cost of starting a business in sub-

Saharan Africa (SSA) represents 215.3 percent of GNI per capita, which is over three times

higher than the next most expensive region (Middle East and North Africa). This figure,

however, masks the heterogeneity in SSA: the percentage ranges in fact from 8.6 percent of

per capita GNI in South Africa to 1,442.5 percent in Zimbabwe. Overall, these figures show

that establishing a business in the formal sector in SSA is a complex, lengthy and costly

undertaking, which are all reasons for enterprises to remain informal (Verick, 2006).

Another barrier for enterprises to operate in the formal economy is licensing. In sub-Saharan

Africa there are on average 20.1 licensing procedures for a business in the construction

industry to build a standardized warehouse. These procedures include obtaining licenses and

permits, completing notifications, inspections and submitting the necessary documents (see

www.doingbusiness.org). The figure for SSA varies from 11 in Kenya and Namibia to 48 in

Sierra Leone. The only region that has more licensing procedures than SSA is Europe and

Central Asia (21.4). These procedures take approximately 251.8 days in sub-Saharan Africa,

ranging from 127 in Ghana to 569 in Cote d‘Ivoire. On average the cost of registration

amounts to 1,597.3 percent of GNI per capita, with a minimum in Mauritius of 16.7 percent



and maximum of over 10,000 percent for Burundi. This cost illustrates another barrier

enterprises face when undertaking such an investment (Verick, 2006 ).

The different dimensions covered by the World Bank‘s Doing Business database allows for a

more detailed empirical country-level analysis of the most important factors determining the

size of the informal economy. A first look at the correlations between the size variable and

other characteristics reveals that the following factors are positively and significantly

correlated with the size of the informal economy: time to get a license; cost of registering a

property; and the number of documents required for exporting. The relationship between the

size and the cost of property registration is illustrated in Figure 3 above. This graph shows

that an increase in the cost of registration by 1 percentage point is associated with an increase

in the size of the informal economy by 0.6 of a percentage point. While there are many

potential variables that influence the formation and growth of the informal economy, this

preliminary analysis indicates that these barriers and costs to doing business are important

factors behind this phenomenon (Verick 2006).

The informal sector in Africa is dominated by trade-related activities, with services and

manufacturing accounting for only a small percentage of this sector. For example, in Angola,

Nigeria, South Africa and Uganda, a majority of informal sector workers are active in retail

trade. Most of these workers are self-employed, which accounts for 70 percent of workers in

this sector in SSA, with the remainder in wage employment. Street vending is one particular

informal activity that is prevalent on the continent. Available data in 1992 indicate that street

vendors represented 80.7 percent of all economic units surveyed in urban areas in Benin, with

women making up over 75 percent of vendors (Verick, 2006 ).

2.1.3. Informal Sector and Economic Development

The contribution of the informal sector to economic development is enormous. As Morgan

(1989) puts it, ―though detail statistics on the enterprises are hard to come by owing to lack

of extensive data bases. It is clear that in many countries their role is extremely important as

contributors to the nation‘s wealth. Evidences from developing economies show that micro-

enterprises are a major engine in industrial and commercial development.

The informal sector represents an important part of the economy and certainly of the labour

market in many countries, especially developing countries, and thus plays a major role in

employment creation, production and income generation. In countries with high rates of

population growth and/or urbanization, the informal sector tends to absorb most of the

growing labour force in the urban areas. Informal sector employment is a necessary survival

strategy in countries that lack social safety nets such as unemployment insurance or where

wages, especially in the public sector, and pensions are low. In such situations, indicators

such as the unemployment rate and time-related underemployment are not sufficient to

describe the labour market situation. In other countries, the process of industrial restructuring

in the formal sector is seen as leading to a greater decentralization of production through

subcontracting to small enterprises, many of which are in the informal sector (Akintoye,

2008; Hussmanns and Mehran, 2008).

Evidence from a number of countries has shown that an increased proportion of employment,

income and output are originating from the sector. For instance, the International Labour

Office (ILO) has estimated that in the poorest countries, 80 percent of workers operate in the

informal and agricultural sector while for middle-income countries the informal/agricultural



figure exceeds 40 percent. On the average, 30 percent of workers in developing world cities

are informal. In a few cases, this percentage is lower; in many it is substantially higher.

According to a recent statistical compilation by the ILO of total urban employment the

informal sector portion accounts for 49 percent in Peru, 40 percent in Ecuador and 54 percent

in Columbia. Among 15 Sub-Saharan African nations urban informal employment as a

percentage of total informal employment ranges from between 9 and 44 percent in Zimbabwe

to 80 percent in Benin, 22 percent in Swaziland, 43 percent in Zambia, 89 percent in Ghana

and in Nigeria one-third of urban labour force are found in the informal sector, with a median

of 49 percent in five Asian countries, the corresponding percentages range from 17 percent to

67 percent (Wickware, 1998; Xaba, et.al 2002).

A study conducted in 1992 by the Economic Commission for Africa indicates that the

informal sector‘s contribution to GDP in the African countries is estimated at about 20

percent and its contribution to the GDP of the non-agricultural sector stood at 34 percent. For

instance, its contribution to GDP was 38 percent in Guinea, 10.3 percent in Tanzania, 30

percent in Burkina Faso, 24.5 percent in Nigeria and 20 percent in Niger. Available data

show that trade represents about 50 percent of the production of the informal sector.

Manufactured production represents 32 percent, while services and transport represent 14 and

40 percent respectively (Kankwanda, et. al 2000).

Its contribution to economic development can also be viewed from the interaction between

the various operators in the sector and between the informal sector operators and the formal

sector operators. According to Herchbach (1989) and Lanjouw (1998) the relationship among

the operators in the informal sector and the relationship between the informal sector operators

and the formal sector operators have contributed to the growth of the informal sector and to

its contribution to economic development and poverty reduction. For instance, the linkages

among the informal sector operators has helped improved the quality of goods and services

produced by the operators thus making them compete favourably with what obtained in the

formal sector. Their relationship with the formal sector has made them powerful distributors

for the goods and services produced by the formal sector enterprises. And the formal sector

enterprises are also known to provide inputs and services to informal sector enterprises

through sub-contracting (see Abumere, 1995).

Grey-Johnson (1993) also reiterates that the linkages with the formal sector are strong,

providing it with a wide array of intermediate and final products. For instance, there are more

demands for informal goods from outside the sector than from within it. For instance, the

informal sector operators consume only 5 percent of their products whereas 50 percent are

consumed in the formal sector and the remainder in subsistence agriculture.

2.2 Poverty: Meaning, Measurement, Causes and Consequences

2.2.1. Poverty: Meaning and Measurement

Poverty has been a difficult concept to define due to its multi-dimensional nature. Earlier

studies on poverty have always linked it to a situation where an individual is confronted with

low income or low consumption-expenditure which is often used for the construction of

poverty line. However, over the years various theories have been advanced in order to put in

proper perspective the mechanics of poverty. The orthodox Western views of poverty,

reflected in the ―Vicious Circle Hypothesis‖ stated that a poor person is poor because he is



poor, and may remain poor, unless the person‘s income level increases significantly enough

to pull the person in question out of the poverty trap. This thought sees poverty from the point

of absoluteness, i.e. when poverty is seen as the level of income below what is required to

have a decent standard of living, which in other words is a situation where the total earnings

of individuals/families are insufficient to obtain the minimum necessaries for the

maintenance of merely physical efficiency. In contrast to this is relative poverty which

explicitly relates poverty to a reference group. Rather than refer to a supposedly objective

standard, it links poverty to a particular point in the distribution curve of a particular variable

such as income. People are judged to be poor if they are poor in comparison to those around

them. This notion of poverty is therefore particularly relevant when debates on social justice

do not merely focus on the needs of bare survival, but also on the question of inequality in

society (Booth, (1887; 1888; 1903); Walker, (1897), Naoniji, (1901); Rowntree, (1901);

Townsand, (1962); Harrington, (1962); Anderson, (1964) cited in Denevert, (1973); Mead,

(1996); Ajakanye and Adeyeye, (2001); Laderchi, et. al (2003); Bradshaw, (2006) and Nunes,

(2008)].

In recent time, a number of studies on poverty have come to see poverty beyond the lack of

income and its skewed distribution, but relate it to hunger, lack of basic capabilities to live in

dignity, lack of shelter, being sick and not being able to go to school, not knowing how to

read, not being able to speak properly, not having a job, fear for the future, losing a child to

illness brought about by unclean water, powerlessness, lack of representation and freedom

(Sen, 1985; World Bank, 1999; World Bank, 2001; Sengupta, 2003; Hunt, et .al 2004). In the

light of the International Bill of Rights, poverty is seen as a human condition characterized by

sustained or chronic deprivation of the resources, capabilities, choices, security and power

necessary for the enjoyment of an adequate standard of living and other civil, cultural,

economic, political and social rights (UN, 2001; UN, 2002).

Closely related to these definitions of poverty is the measurement of poverty. Over time,

different methods were identified and used in the measurement of poverty. Key among them

is the use of a poverty line that separates the ―poor‖ from the ―non-poor‖. There are two types

of poverty lines which are generally used: first, is that which represents the value of a

selection of goods or services that are identified as necessary, and second, is that which

relates to the distribution of income/expenditure within a society. Poverty line which

represents the value of a selection of goods or services that are identified as ‗needs‘ is

generally calculated by giving a monetary value to a basket of goods or services that are

identified according to the standard of living or well-being that policy makers decide should

reflect a state of impoverishment. This type of poverty line can be used to depict what is

known as a ―head-count‖ of the total number of people living in poverty. Second is the

poverty line that relates to the distribution of income/expenditure within a society which is

often relative and set at the level that includes people living below a particular

threshold/bench mark. An example is when the poverty line is set at the level that indicates

that people living below 20 percent of national income of a nation as being very poor like in

the case of South Africa or a poverty line set at $275 and $370 per person a year for the

extreme poor and for the moderate poor respectively or a poverty line set at $1 and $2 dollars

a day for the extreme poor and for the moderate poor respectively as provided by the World

Bank. One advantage of this measure of poverty is that it allow for comparisons of poverty

levels between countries to be drawn with relative ease (World Bank, 1990; 2001).

Related to the above measure of poverty is that provided by Foster, et.al (1984), which

includes the following: (i) the head count poverty index given by the percentage of the



population that live in the household with a consumption per capita less than the poverty line;

(ii) poverty gap index which reflects the depth of poverty by taking into account, how far the

average poor persons income is from the poverty line; and (iii) the distributional sensitive

measure of squared poverty gap defined as the means of the squared proportionate poverty

gap which reflects the severity of poverty. Put together, they are referred to as P-alpha Class

measure of poverty1.

Recently too, the use of income and consumption-expenditure as basis for determining the

poverty line are beginning to lose much of their relevance since the method of calculation

was not adapted to the new economic trends resulting from high rate of inflation and the

prevailing high increase in interest rate and exchange rate devaluation. Thus the Minimum

Wage and Minimum Pension2, Food Insecurity Measures of Poverty (FIMP)

3, Human

Development Index (HDI)4 and Capability Poverty Measure (CPM)

5 and Indices of Multiple

Deprivation (IMP)6 are now advocated.

1 The index for poverty measures as give by Foster, et.al (1984) is:

q

P = 1/ n ( z-yi / z)

i=1

Where:

n = number of heads of households in the zones.

q = number of heads of households that are poor in the zones.

z = poverty line.

yi = total consumption–expenditure of individual i in the zones.

= poverty aversion parameter.

The poverty aversion parameter () can take any positive value or zero. The higher the value the more the index weights the

situation of the poor in the zones, i.e. the people farthest below the poverty line. Of specific interest are the cases where: =

0,1 and 2. 2 Cited in Grootaert (1995:9) 3 FIMP sought to cost a nutritionally balanced minima list diet for a household (SPII, 2007) 4 The Human Development Index (HDI) combines three components: longevity (life expectancy at birth) educational

attainment and standard of living (UNDP, 2009). 5 Capability Poverty Measure (CPM) focuses on human capabilities just as the Human Development Index does. Instead of

examining the average state of people‘s capabilities it reflects the percentage of people who lack basic or minimally essential

(UNDP, 2009) 6 The index is made up of the following: Health deprivation, Employment deprivation, Income and material deprivation,

Education deprivation and Living environment deprivation(SPII, 2007)



2.2.2 Causes of Poverty

Theoretically, a number of studies have over time provided and discussed some of the factors

that are the root causes of poverty. For instance, as observed by Bradshaw (2006) key among

the causes are those that focus on the individuals as responsible for their poverty situation; those

linked to the culture of the people; those linked to economic, political and social

distortions/discrimination; those linked to geographical disparities; and those caused by

cumulative and cyclical interdependencies. The theory that focused on individuals typically

blame individuals in poverty for creating their own problems, and argued that with hard work and

better choices the poor could have avoided their problems or remedy them. Other variations of

the individual theory of poverty ascribe poverty to lack of genetic qualities such as intelligence

that are not so easily reversed. The belief that poverty stems from individual deficiencies is old.

For instance, religious doctrine that equated wealth with the favour of God was central to the

Protestant reformation. Ironically, neo-classical economics reinforces individualistic sources of

poverty. The core premise of this dominant paradigm for the study of the conditions leading to

poverty is that individuals seek to maximize their own well-being by making choices and

investments, and that (assuming that they have perfect information) they seek to maximize their

well-being. When some people choose short term and low-payoff returns, economic theory holds

the individual largely responsible for their individual choices, for example, to forego college

education or other training that will lead to better paying jobs in the future.

The theory that focused on the culture of the people suggests that poverty is created by the

transmission over generations of a set of beliefs, values, and skills that are socially generated

but individually held. Individuals are not necessarily to blame because they are victims of

their dysfunctional sub-culture or culture. Culture is socially generated and perpetuated,

reflecting the interaction of individual and community. This makes the ―culture of poverty‖

theory different from the ―individual‖ theories that link poverty explicitly to individual

abilities and motivation. Technically, the culture of poverty is a sub-culture of poor people in

ghettos, poor regions, or social contexts where they develop a shared set of beliefs, values

and norms for behaviour that are separated from but embedded in the culture of the main

society. Oscar Lewis was one of the main writers that define the culture of poverty as a set of

beliefs and values passed from generation to generation. He writes:

Once the culture of poverty has come into

existence it tends to perpetuate itself. By the time

slum children are six or seven they have usually

absorbed the basic attitudes and values of their

subculture. Thereafter they are psychologically

unready to take full advantage of changing

conditions or improving opportunities that may

develop in their lifetime.

With regard to the theory of poverty that is caused by economic, political and social

distortions/discrimination, theorists in this tradition look not to the individual as a source of

poverty, but to the economic, political, and social system which causes people to have limited

opportunities and resources with which to achieve income and well-being. For example, Marx

showed how the economic system of capitalism created the ―reserve army of the unemployed‖ as

a conscientious strategy to keep wages low. Marx‘s theoretical formulation was largely based

on the principle of exploitation of labour. The theoretical formulations presents the economy

as ultimately polarized into a few rich capitalists and the masses made up of the poor

miserable workers. Technological progress, he argued, was labour saving, but resulted in

displacement of workers that joined the reserved army of the unemployed, and where labour



was not displaced wage level was depressed. The consequence at the end was increase in the

number of people that are poor. Cases of parallel barrier against the poor also exist with the

political system in which the interests and participation of the poor is either impossible or is

deceptive. A number of studies have confirmed the linkage between wealth and power, and how

poor people are less involved in political discussions. Coupled with racial discrimination, poor

people lack influence in the political system that they might use to mobilize economic benefits

and justice.

At the global level, is the process of marginalization arising out of work relations in the capitalist

global economy and the composition of the neoliberal global economic order. A look at the

structural composition of the global economy seems to rest on three main components. First,

institutional arrangements for free trade under the World Trade Organization (WTO) and

supported by a worldwide program of deregulation and privatization of economic activity

engineered by the World Bank (WB) and the International Monetary Fund (IMF). Secondly,

the massive drive for capital accumulation by transnational capital under the leadership of

transnational corporations (TNCs). And thirdly, the unequal participation of southern elites in

the global capitalist order, which breeds structural imbalances between the industrial north

and the undeveloped south. This structural set-up serves the interests of dominant capitalist

class of a handful Western developed countries who underwrite the rules for global

economic, business, technological and financial interactions but also work in collaboration

with the dominant social forces in the developing countries as junior partners. The pattern of

collaboration, although unequal and based on a dominant versus dominated relationship,

produces a structure that tends to be biased in favour of the rich and wealthy people to the

detriment of the poor everywhere. Poverty is a necessary by-product of this structural

composition and functional mechanism of the global economy (Nuruzzaman, undated;

Mbeki, 2009). A critical look at the Structural Adjustment Programs (SAPs) carried out by

the WB and the IMF will be seen to have further weakened and damaged the interests of the

developing countries. The policy package SAPs advocate rests on three important elements:

dismantling the role of the state in economic development; liberalization of trade and

investment regimes; and privatization of economic activities. Of course, the two Bretton

Woods institutions did not spontaneously formulate the SAPs and then imposed these on the

developing countries across the South; indeed, the debt crisis of the 1980s created the prelude

to devise the SAPs and Mexico‘s second collapse in 1995 led to further tightening of the

SAPs. It is more than two decades the IMF and the WB are experimenting with SAPs but no

major progress has still been achieved. Rather, the experiences of developing countries,

particularly those in South Asia and Sub-Saharan Africa, confirm that the SAPs have very

little to do with achieving the much-expected economic growth but structural subordination

of the South to the North and its impoverishment (Nuruzzaman, undated).

Another theory of the root cause of poverty that is built on the above is the poverty caused by

geographical disparities such as rural poverty, ghetto poverty, urban disinvestment and third

world poverty. The existence of this type of poverty is the fact that people, institutions, and

cultures in certain areas lack the objective resources needed to generate well-being and

income, and that they lack the power to claim redistribution (Bradshaw, 2006). This position

was in line with that of Bigman and Fofack (2000) who gave the following reasons why some

geographic areas become pockets of poverty, while others have become islands of prosperity:

differences in agro-climatic condition; endowment of natural resources, or geographic

conditions (particularly the distance to a sea outlet and to centers of commerce); and biases in

government policies. On a general note, they said the causes of poverty include; the low

quality of public services particularly in education and health in some areas (which further



impedes the accumulation of human capital and thus earnings capacity of the people); the

poor condition of rural infrastructure which limits trade and retards local investment and

growth; the low level of social capital which slows the diffusion and adoption of new farm

technologies, and thus reduces farmers earning capacity; and the distance from urban centers

which inhibits trade, specialization in production and access to credit.

A more interesting and complex theory of the root causes of poverty is the poverty caused by

cumulative and cyclical interdependencies. This theory of the cause of poverty is, to some

degree, built on the components of each of the other theories discussed above, in that it looks at

the individual and their community as caught in a spiral of opportunity and problems, and that

once problems dominate they close other opportunities and create a cumulative set of problems

that make any effective response nearly impossible. This theory has its origins in economics in

the work of Myrdal published in 1957. In the book, Myrdal developed a theory of ―interlocking

circular interdependence within a process of cumulative causation‖. The theory helps explain

economic underdevelopment and development. Myrdal notes that personal and community well-

being are closely linked in a cascade of negative consequences, and that closure of a factory or

other crisis can lead to a cascade of personal and community problems including migration of

people from a community. Thus the interdependence of factors creating poverty actually

accelerates once a cycle of decline is started.

In furtherance to the above position, Bradshaw (2006) also cited the work of Jonathan Sher

(published in 1977) on the interaction between education and employment at the country and

individual level. For instance, at the community level, a lack of employment opportunities leads

to out-migration, closing retail stores, and declining local tax revenues, which leads to

deterioration of the schools, which leads to poorly trained workers, leading firms not to be able to

utilize cutting edge technology and to the inability to recruit new firms to the area, which leads

back to a greater lack of employment. At the individual level, the lack of employment leads to

lack of consumption and spending due to inadequate incomes, and to inadequate savings,

which means that individuals can not invest in training, and individuals also lack the ability to

invest in businesses or to start their own businesses, which leads to lack of expansion, erosion

of markets, and disinvestment, all of which contribute back to more inadequate community

opportunities.

In order to better understand and be able to distinguish between levels of causes of poverty,

McCaston and Rewald (2005) developed a causal hierarchy that is useful in understanding

the underlying causes of poverty. This causal hierarchy is broken down into three categories:

immediate causes; intermediate causes; and underlying causes as shown in Table 2.1 below. Table 2.1: A Causal Hierarchy of Causes of Poverty

Some Examples

Immediate Causes These are causes that are directly related to life and

survival and include:

• Disease

• Famine

• Environmental disasters

• Conflict

Intermediate Causes These causes affect people‘s well-being and

opportunities for development and livelihood security,

and include:

• Low livelihood (agric or income) productivity;

• Limited livelihood opportunities;

• Lack of skills; inadequate access to food;

• Inadequate care for women and children;



• Lack of basic services, e.g., health, education, water

and sanitation, education

Underlying Causes These causes are related to the structural

underpinnings of underdevelopment, specifically

social systems and political and economic structures,

and environmental issues. They involve:

• Economic: Inequitable resource distribution

(distributive justice); globalization; terms of trade;

structural adjustment

• Political: Poor governance and institutional capacity;

corruption; violent conflict; lack of political will;

domination by regional/global superpowers

• Social: Marginalization, inequality, social exclusion

(based on gender, class, ethnicity); harmful societal

norms, customs and cultural practices, over-population

• Environmental: Carrying capacity; resource-based

conflict; environmental disasters; propensity for

human disease; propensity for crop & livestock disease

Source: McCaston and Rewald, 2005.

2.2.3 Consequences of Poverty

According to Von Hauff and Kruse (1994), the consequences of poverty include among other

things: (i) the consequences arising from physical and psychological misery, which

understandably are caused by inadequate nourishment, lack of medical care, a lack of basic

and job related education and marginalization in the labour markets; (ii) the consequences

arising through the formation of slums in cities, a worsening of ecological problems

particularly, as a result of predatory exploitation in the agricultural sector and through the

failure to use the available human resources; and (iii) the consequences that tend to preserve

or reinforce the existing power structures and thus also the privileges of a minority of the

population. In some cases this involves corrupt elites. These privileged minorities in the

population are not generally interested in structural changes for the benefit of the poor

population.

As observed by Narayan, et. al (2000a) when people are poor, they tend to lack protection

against violence, extortion and intimidation and also lack civility and predictability in

interactions with public officials. The poor is also prevented from taking advantage of new

economic opportunities and engaging in activities outside their immediate zone. Threat of

physical force or arbitrary bureaucratic power makes it difficult for them to engage in public

affairs, to make their interests known and to have them taken into account.

Narayan, et al. (2000b) also indicates that with poverty, a lot of people are also confronted

with agonizing choices became they are powerless and voiceless. Powerless as they are in

many respects, poor people face options that are often exceptionally constrained. In making

choices the best they can do may be to look for the least negative and the damaging. They

have little cushion against mistakes. They have to choose with care, for example, among

different sources of cash or credit for daily needs or for an emergency. They are forced again

and again to trade-off one bad thing against another just like trading off a good candidate for

a bad one during an election because of money.



2.3. Poverty in Nigeria and in Kwara State

Available data on the poverty situation in Nigeria has shown that over time, there has been an

increase in the total poverty head count. As indicated in Table 2.2, the total poverty head

count has had a steady increase from 28.1 percent in 1980 to 65.6 percent in 1996, with a

slight drop to 54.4 percent in 2004. A comparison of the rate of urban and rural poverty

indicates that urban poverty rose from 17.2 per cent in 1980 to 58.2 percent in 1996, but

declined to 43.2 per cent in 2004 while that of the rural area increase from 28.3 percent in

1980 to 69.3 percent in 1996, with a slight decline to 63.3 percent in 2004. Of the six geo-

political zones in Nigeria, the North West witnessed an increase in the rate of poverty head

count from 37.7 percent in 1980 to 77.2 percent in 1996. However, in 2004 the poverty head

count in the zone dropped to 71.2 percent in 2004. In Kwara State, the Core Welfare

Indicators Questionnaire (CWIQ) Survey conducted in 2006 by the National Bureau of

Statistics indicated that total poverty head count was 83.3 per cent for the whole State, while

poverty head count for both the rural and urban areas were 95.9 percent and 97.3 percent

respectively (NBS, 2006).

Table 2.2: Incidence of poverty in Nigeria, 2004

1980 1985 1992 1996 2004

National 28.1 46.3 42.7 65.6 54.4

Urban 17.2 37.8 37.5 58.2 43.2

Rural 28.3 51.4 66.0 69.3 63.3

South-South 13.2 45.7 40.8 58.2 35.1

South-East 12.9 30.4 41.0 53.5 26.7

South-West 13.4 38.6 43.1 60.9 43.0

North-Central 32.2 50.8 46.0 64.7 67.0

North East 35.6 54.9 54.0 70.1 71.2

North West 37.7 52.1 36.5 77.2 71.2

Sources: NBS 2004; UNDP 2009

Some of the theoretical causes of poverty discussed in section 2.2 above were not far

different from the causes of poverty in Nigeria. For instance, as observed by Obadan (1997)

the main factors that are causes of poverty in Nigeria include: inadequate access to

employment opportunities; inadequate physical assets, such as land and capital and minimal

access by the poor to credit even on a small scale; inadequate access to the means of

supporting rural development in poor regions; inadequate access to markets where the poor

can sell goods and services; low endowment of human capital, destruction of natural

resources leading to environmental degradation especially in the Niger Delta and reduced

productivity; and inadequate access to assistance for those living at the margin and those

victimized by transitory poverty and lack of participation. That is, failure to draw the poor

into the design of development programmes. Ijaiya (2000) also confirmed these causes in a

study of Ilorin, Kwara State. They include the lack of or limited supply of some basic needs

of life such as food, shelter, portable water basic health care services, sanitation facilities,

transportation and electricity are some of the causes of poverty in the city. For instance, the

non-accessibility of health care services has aggravated the health situation of most of the

households in the city. Sickness is usually devastating and drains the affected people‘s

meager resources because it disrupts the economic activities of the entire household. The

urban cities in the State also have a long history of acute water shortage. This shortage has

caused a lot of hardship for most of the households who have to spend time daily looking for

water which in effect cuts down their productive time and adversely affects their income

generating efforts and welfare.



2.4. Urban Poverty Incidence

Urban poverty situations are usually linked to the problems associated with urbanization,

which in turn is linked to the massive movement of people from the rural areas to the cities.

As observed by Dale (2009) and Sabry (2010), given the massive movement of people from

the rural areas to the cities, the scale of urban poverty has been on the rise worldwide, thus

creating urban slums, often referred to as informal settlements, which are areas without

enough resources, with degraded environmental conditions, without or with limited access to

proper sanitation, clean water, electricity and health care facilities. These worsening

environmental conditions in turn damage residents‘ health and entrench the stigma and

isolation of living in informal settlements, making it all the more difficult to escape from

poverty (see Montgomery and Hewett, 2004) .

Some of the recent studies on urban poverty are those of Ijaiya (2000), Sabry (2010). The

study by Sabry (2009, 2010) indicates that the poverty estimates in the Egyptian urban areas

in 2009 was 11 percent. In Cairo, especially the Greater Cairo made up of Giza, Qalyoubia,

Helwan and 6th October areas the poverty rate is high because they form parts of the

slums/informal settlements in the city. The study also revealed that these areas have the

highest rate of malnutrition, where about 16 percent of children were underweight which is

much higher than the recorded income poverty rate in urban areas. The study also revealed

that the costs of basic non-food needs—such as for housing, transportation, basic education

and health, and access to water, sanitation and electricity—are much higher than commonly

recognized. In the poor environmental conditions of these slums/informal settlements, the

chances of getting ill are high because the public health system in Egypt is severely

deteriorated. Poor people rarely find the free medicine that is supposed to be available. Thus,

their health expenses are extremely high. Thus, it is not surprising to find that the scale of

untreated illnesses in these areas was colossal. Health conditions in the informal settlements

are often deplorable because of the lack of access to essential services. For example,

connections to the public sanitation networks are missing from entire areas. This means that

residents have to pay once or twice a month (at 50-80 LE) just to have their trenches emptied

of sewerage. Even when there are water connections in the slums, low pressure makes its

supply scarce. Just to be connected to the water network costs an average of 15 LE per

month.



CHAPTER 3

METHODOLOGY

3.1. Study Area

The study area is Kwara State, Nigeria. The State was created on the 27th

of May 1967. The

population of the state is about 3.3million people, based on the 2006 National Population

Census. The distribution of this figure by local government and by gender is shown Table

3.1.

Kwara State occupies geographically vantage position on the map of Nigeria. It is situated

between Latitudes 110 2

‘ and 11

0 45‘N and between Longitude 2

0 45‘ and 6

0 4‘E. It also lies

midway between the Northern and Southern parts of Nigeria bounded in the North by Niger

State and shares international boundary with the Republic of Benin in the West. To its eastern

border is Kogi State; while in the south it shares boundary with the four states of Ekiti, Osun

and Oyo. The State is covered by the Sudan and Woody Savanna vegetation with a mean

annual rainfall and temperature of 1,338mm/year and 26.50C respectively.

Table 3.1. Population Distribution of Kwara State, 2006 Census

S/No LGA Headquarters Gender Total

Male Female

1. Asa Afon 64,982 61,453 126,435

2. Baruteen Kosubosu 108,153 101,306 209,459

3. Edu Lafiagi 104,944 96,525 201,469

4. Ekiti Araromi-Opin 28,402 26,448 54,850

5. Ifelodun Share 106,056 99,986 206,042

6. Ilorin East Oke-Oyi 104,402 99,908 204,691

7. Ilorin South Fufu 104,504 104,187 208,691

8. Ilorin West Ilorin 181,875 182,791 364,666

9. Irepodun Omu-Aran 75,539 73,071 148,610

10. Isin Owu Isin 30,833 28,905 59,738

11. Kaiama Kaiama 68,240 55,924 124,164

12. Moro Bode-Saadu 55,630 53,162 108,792

13. Offa Offa 46,266 43,408 89,674

14. Oke Ero Ilofa 29,515 28,104 57,619

15. Oyun Ilemona 48,601 45,652 94,253

16. Patigi Patigi 62,639 49,678 112,317

Total 1,220,581 1,150,508 3,271,089

Source: national Population Commission, Abuja.

3.2. Model for Poverty Analysis

Both qualitative and quantitative methods were used in analyzing the data collected for the

study. The qualitative analysis based on content analysis and the perception of the people

operating in the urban informal sector was used in determining the causes and consequences

of poverty in the urban informal sector of Kwara State. The quantitative method comprised

the use of descriptive statistics such as percentile, in describing the socio-demographic

characteristics of the respondents and in describing the nature of the urban informal sector of

Kwara State. Other quantitative methods used were the household consumption-expenditure



per adult equivalent adopted by Organization for Economic Co-operation and Development

(OECD) and the P-alpha class measures of poverty adopted by Foster and others in 1984 in

determining the extent of poverty (i.e. the incidence, the depth and the severity of poverty).

These methods were in line with most recent works on poverty.

In this study thus, the poverty analysis was based on money–metric measure of utility and

welfare. For measure of utility and welfare, total consumption-expenditure of the heads of

household operating in the urban informal sector was used as a measure of their welfare and

for determining the poverty line. The analysis also took into consideration differences in

needs due to the difference in the respondents‘ household size and composition, and therefore

used the household consumption- expenditure per adult equivalent as the welfare measure.

There are wide choices of adult equivalent scales and different scales used in different

countries. The most commonly used is that of the Organization for Economic Co-operation

and Development (OECD) because of its simplicity of use and wide familiarity. This scale is

expressed as follow:

EXPeq = EXP / n( 0.7)

(3.1)

Where:

EXP = total consumption-expenditure of the operators in the

urban informal sector

n = household size of the operators in the

urban informal sector

0.7 = exponential formation representing other adults in the

household of the operators (Glewwe, 1990; Grootaert and

Braithwaite, 1998).

A cut–off point was selected to serve as poverty line across the distribution of real household

expenditure per adult equivalent. An absolute line such as $1 a day [Purchasing Power Parity

(PPP$)] was used in identifying the poor (World Bank 2001).

The next stage in the analysis of poverty in the urban informal sector of Kwara State was the

use of the popular P–alpha class of poverty measures introduced by Foster, Greer and

Thorbecke in 1984.The index is defined as:

q

P = 1/ n (z-yi / z)

(3.2)

i=1

Where:

n = number of households in the urban informal sector

q = number of poor households in the urban informal sector

z = poverty line

yi = total consumption – expenditure of individual head of household

in the urban informal sector

= poverty aversion parameter.

The poverty aversion parameter () can take any positive value or zero. The higher the value

the more the index weights the situation of the poor households in the urban informal sector

i.e. households that are farthest below the poverty line. Of specific interest are the cases

where = 0,1 and 2.



If = 0 the index becomes:

P0 = q/n (3.3)

which is the simple head count poverty rate, i.e. the number of poor households in the

urban informal sector of Kwara State as a percentage of the total population. Although, as a

useful first indicator, it fails to pay attention to the depth (or gap) and severity of poverty in

the urban informal sector.

To arrive at the depth of poverty and severity of poverty we looked at the extent to which the

expenditure of the poor households in the urban informal sector falls below the poverty line.

This is customarily expressed as the ―income gap ratio‖ or ―expenditure gap ratio‖ which

expresses the average shortfalls as a fraction of the poverty line itself, i.e.:

z – yi/z (3.4)

Where:

yi is the average income or expenditure of the poor households in the sector.

A useful index was obtained when the head count poverty ratio was multiplied by the income

or expenditure gap ratio. Thus corresponding to:

P1 = q/n( z-yi/z ) (3.5)

which reflects both the incidence and depth of poverty in the sector. These measures have

particularly useful interpretation because they indicate what fraction of the poverty line

would have to be contributed by every individual household in the sector to eradicate poverty

through transfer under the assumption of perfect targeting.

The severity of poverty index is the mean of the squared proportion of the poverty gap

expressed as:

P2 = q/n ( z – yi/z) 2

(3.6)

This index allows for concern about the poverty of the poor households in the sector by

attaching greater weight to the poverty of the poorest ones among them than to those just

below the line.

3.3. Data Requirements and Sources

In addition to the use of secondary data, a survey aimed at generating primary household data

on the measurement of poverty in the urban informal sector of Kwara State was conducted

using a structured questionnaire, a Participatory Poverty Assessment method and the P-alpha

class measures of poverty. The questionnaire was based on the World Bank Living Standards

Measurement Study (LSMS); International Labour Organization‘s Rapid Assessment Surveys

of Poverty (RASP); World Bank Household Priority Surveys ( HPSs) and the National

Bureau of Statistics‘ National Integrated Surveys on Households (NISHs) methods, which,

among other things, provide a comprehensive monetary measure of welfare and its

distribution and the description of the patterns of access to and use of social services e.g.

education and health care services. The Participatory Poverty Assessment (PPA) method was



used to obtain information from key informants in the urban informal sector on their

perception of the causes and consequences of poverty in the sector (Grootaert, 1986; Robb,

2000; NBS, 2008).

3.4. Sample Selection Method

A multi-stage stratified random sampling method was used in the selection of the

respondents. To have an unbiased selection of samples the study area was divided into the 16

local government areas in the State. In accordance with these sample units, a structured

questionnaire was distributed to about 1000 respondents based on a normal distribution

model in the urban informal sector of the State (an average of 60 respondents per local

government area). Only 86 per cent of the administered questionnaires were retrieved for

analysis.

The issues raised in the questionnaire include the background of the respondents (i.e. age,

marital status, educational status, employment status, household size and composition);

income; total consumption-expenditure; and access to social services (e.g. health care

services and medical attention in case of illness, safe drinking water, healthy and safe

environment and education, etc).



CHAPTER 4

DATA ANALYSIS, INTERPRETATION AND DISCUSSION OF RESULT

4.1. Characteristics of the Operators

The socio-demographic characteristics of 856 respondents in the Urban Informal

Sector of Kwara State included in the analysis are presented in Table 4.1. Table 4.1. Socio-demographic Characteristics of the Respondents

Characteristics

Percentage (%)

a.. Gender of the Respondents

Male 36.9

Female 63.1

b. Age of the Respondents

Below 31 23.1

31- 40 46.5

Above 40 30.4

c. Marital Status of the Respondents

Single 35.4

Ever Married 64.6

d. Household Size of the Respondents

1-5 56.5

6-10 13.7

More than 10 29.8

e. Educational Status of the Respondents

No formal schooling 11.5

Primary Education 14.1

Junior Secondary 12.4

Senior Secondary/Technical School 32.0

Post Secondary 1 (OND/NCE) 15.7

Post Secondary 2 (HND, B.Sc) 13.2

Post Secondary (Master and above) 1.1

Source: Authors‘ computation The survey conducted on urban informal sector of Kwara State showed that 63.1 per

cent of the operators are female while 36.9 per cent are male. It further shows that 23.1 per

cent are below 31 years; 46.5 percent is within the 31- 40 years age bracket; and about 30.4

percent were found to be above 40 years. The study shows that 64.6 per cent are married.

Operators with 6 household members constitute 56.5 per cent while those with 6-10

household members were found to constitute 13.7 per cent. Operators with more than 10

household members stood at 29.8 per cent.

The minimum year of schooling in Nigeria is nine years, which is equivalent to completed

Junior Secondary School. The survey revealed that about 74.4 per cent of the operators had

the required minimum years of schooling.



4.2. Nature of the Informal Sector in Kwara State

The salient features of the informal sector in the Kwara State, Nigeria are shown in Table 4.2.

Table 4.2. The Nature of the Informal Sector of Kwara State, Nigeria

Variable Percentage (%)

a. Type of informal sector activity

Trading (buying and selling) 24.9

Tailoring/Sewing/Knitting 13.3

Hairdressing 9.4

Manufacturing 8.2

Food Vendor/Catering 6.8

Food processing 3.9

Repair services 12.5

Transportation 8.2

Others 12.8

b. Ownership Structure of the Business

Self/Sole Proprietorship 81.2

Family Owned 10.9

Partnership 6.3

Others 1.7

c. Other Type of Work engaged in

Farming 45.9

Government Work 22.2

Other Informal Activities 19.2

Organized Private Sector 6.5

Others 6.3

d. Nature of Employment

Part time 31.7

Full time 68.3

e. Reasons for establishing the Business

Lack of employment in formal sector 35.0

To help family members earn more income 35.7

Personal interest 27.2

Others 2.1

f. Major source of financing Start-up Capital

Inheritance 11.7

Personal savings 49.2

Fund from spouse/relation/friends 26.3

Cooperative Society 6.8

Bank loan 1.8

Government loan (NDE, NAPEP, PAP, etc.) 0.5

Others 3.7

g. Range of hour of operation per day

1- 8 hours 37.7

Above 8 hours 62.3

h. Number of Employees

Nil 32.9

1-5 60.4

Above 5 6.7

i. Number of Apprentice

Nil 12.8

1-5 62.2

6-10 20.9

Above 10 4.1



j. Number of Apprentice trained since establishing the business

Nil 14.0

1-5 65.6

6-10 12.9

Above 10 7.5

Source: Field Survey.

In terms of single activity, 24.9 percent of the informal sector operators are engaged in

trading (buying and selling); followed by tailoring and repair services which accounted for

13.3 and 12.5 per cent respectively. Other activities accounted for 12.8 per cent. The

ownership of business as usual in this type of sector is dominated by sole proprietorship,

which accounted for 81.2 per cent of the businesses surveyed. The reasons for the dominance

of sole proprietorship are; ease of entry and exit; low start-up capital requirement; and no

accountability to business regulators.

This study also revealed that in establishing some of the informal sector businesses factors

such as lack of employment in formal sector, the desire to help family members earn more

income and personal interest determined the establishment of some of the enterprises. Of

these factors, 35.7 percent of the operators established their businesses due to the desire to

assist family members earn more income, while 35 per cent established the outfits due to lack

of employment in the formal sector. Personal interest was responsible for the establishment of

27.2 per cent of the businesses.

The source of finance for start-up capital revealed that 49 per cent of the operators sourced

their capital from personal savings. In terms of formality of sources of finance 97.7 per cent

of the operators got their start-up capital from the informal financial sector while formal

financial sector accounted for only 2.3 per cent. The informal sector of Kwara State was

found to provide avenue for training of prospective informal sector operators through the

apprenticeship system. It also employs urban semi skilled and unskilled labour as shown in

Table 4.2.

The study reveals that 62.3 per cent of the enterprises operate above 8 hours per day. The

reason for this may partly be because most of the people operate within their homes. To their

clients it is an avenue to reach them any time the need arises and to the operators it allows

them to continue to attend to their clients with the long run effect of increasing the supply of

goods and services at cheaper rates and increasing their own income and standards of living.

4.3. Result of the Poverty situation in the Urban Informal Sector of Kwara State

This section provides an overview of the poverty situation in the urban informal sector of

Kwara State. The analysis of poverty in the sector was first done by estimating the incidence,

the depth and the severity of poverty in the urban areas, by gender and by economic activities

in the sector. In estimating the poverty indices, this study measures the well-being of

individual heads of households (who incidentally are also the operators in the informal

sector) by their total consumption-expenditure on non-durable goods and by household size,

using the adult equivalent scale formula.

Having established the individual households consumption-expenditure, a cut-off point,

which served as the poverty line (using the 2/3 of the mean per capita consumption-

expenditure of the whole population which was converted to the World Bank $1 per day)

was set at N9,837.66 per month per adult equivalent. From this, the popular P-alpha class of



poverty measures was used in determining the incidence, the depth and the severity of

poverty in the urban informal sector of Kwara State. Table 4.1 below provides the estimates

of the rate of poverty in the urban informal sector of the State, by gender and by economic

activities based on the three (3) measures of poverty: the head count poverty index, the

poverty gap (depth) and the severity of poverty index as at November 2010. In the urban

areas, the head count poverty index was 0.63, which represent 63 percent of the people in the

urban informal sector of Kwara State whose consumption-expenditure level falls below the

poverty line (N9,837.66 per month).

Table 4.3: Foster-Greer-Thornbecke (FGT) Poverty Measures for Kwara State.

Source: Authors‘ Computation.

Within the same period, the poverty gap index was 0.42 which represent 42 percent of the

extent of shortfall of the average income of the poor from the poverty line. That is, how poor

a person is from the poverty line. This gap is referred to as the poor‘s degree of misery. Thus

representing the percentage of the expenditure required to bring each individual person that is

poor below the poverty line up to the poverty line. The severity of poverty index was 0.28,

which represent 28 percent of the poorest of the poor households in the urban informal sector

of Kwara State whom policy makers must pay attention to in the State in the distribution of

the standards of living indicators such as health care services, clean water, sanitation, food

and income generating activities.

No. of Poor

Households

based on

N9,837.00

Poverty

Line

Poverty

Head

Count

Index Po

Poverty

Gap

Index P1

FGT

Index

P2

Whole State 663 0.63 0.42 0.28

Male 184 0.68 0.44 0.28

Female 235 0.59 0.41 0.28

Informal Sector

Activity:

Trading 55 0.36 0.24 0.15

Tailoring/Sowing/Knit

ting

58 0.67 0.40 0.24

Hair Dressing 43 0.64 0.36 0.20

Manufacturing 27 0.51 0.40 0.32

Food Vendor

Services/Catering

34 0.66 0.47 0.34

Food Processing 15 0.71 0.46 0.29

Repair Services 60 0.72 0.49 0.33

Transportation 26 0.52 0.40 0.32

Others 36 0.54 0.37 0.25



By gender, the study revealed that 68 percent of those that are poor in the sector are male. Of

all the economic activities in the sector 72 percent of the poor are mostly found in the repair

services activities of the sector.

Generally thus, the use of these three (3) measures of poverty clearly indicates that the rate of

poverty in the urban informal sector of Kwara State is relatively high when compared with

the total percentage of the people that are poor in Nigeria [(64 percent as provided by the

African Development Bank in 2004 (see ADB, 2010)].



CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

An empirical analysis of the rate of poverty in the urban informal sector of Kwara State was

carried out using a set of household data and the P-alpha class poverty measure. The result of

the analysis indicates that the rate of poverty in the urban informal sector of Kwara State is

high with 63 percent of the operators‘ consumption-expenditure per adult equivalent falling

below the poverty line of N9, 837.66 per month. The poverty gap index was 0.42 and the

severity of poverty index stood at 0.28.

Drawn from the result, to address the poverty situation in the sector, there is the need to look

at the challenges raised by the poor operating in the sector. First is that the government

especially the local government authorities should recognize the contribution of the operators

in the sector to the economic development of Kwara State and to also see them as partners in

development than nuisance. The incessant displacement, demolition, arrest and harassment of

the operators by the police and the local law enforcement agencies; and the incessant increase

in trading fees that are inimical to entrepreneurial development, as well as to the

improvement of their wellbeing should also be addressed. A situation where operators are

displaced and their shops are demolished without compensation and alternative locations is

detrimental to entrepreneurial development and improvement in the wellbeing of the

operators.

The operators in the urban informal sector of Kwara State should resort to self

help/communal assistance and the tenets of social capital since the governments over time

have failed to recognize the operators as partners in development and in providing social

services to the people. With self help the efforts of the operators would be frequently geared

toward changing the critical situations they found themselves in and in influencing their

political and social conditions, such as securing freedom for themselves. With self help there

is also the conviction that their efforts or the efforts resulting from the solidarity of the group

would be a decisive factor in the formation of a feeling of self-esteem. With self help the

operator‘s own resources in the form of labour, capital, land and skills would also be used for

the upliftment of their standard of living. On the other hand, social capital often referred to as

norms and social relations, when embedded in the social structures of the operators in the

urban informal sector would enable them coordinate actions or act collectively in order to

achieve their desired goals, key among them is the upliftment of their standard of living.

The government should also address some of the critical infrastructure challenges the

operators are facing. First, there should be regular supply of electricity and safe water which

are important to the operation of businesses in the sector and to the live of the people

operating within the sector. Second, government should also assist in the provision of credit

facilities at the micro level and the provision of micro insurance facilities to serve as coping

measure in case of unforeseen situations. For the purpose of efficient disbursement of the

credit facilities the government can make use of trade associations and cooperative societies

the operators belong to.

Finally and critical too is the involvement of the operators in the urban informal sector in

activities that affect their lives and the fight against corruption. Their involvement for

instance, would allow for proper representation, adequate information flow, consultation,



negotiation, mediation and commitment on the part of the people. The fight against

corruption would guide against the diversion of funds and material resources that are meant

for the development of the sector and the communities where they operate.



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