EVALUATION ON THE ROLE OF INFORMAL SECTORS IN POVERTY ALLEVIATION OF LOW-INCOME HOUSEHOL IN EKITI.

CHAPTER ONE INTRODUCTION 1.1 Background to the Study Poverty remains one of the most widespread global challenges, profoundly impacting individuals, communities, and nations, particularly in developing regions. The World Bank (2023) defines poverty as a state of insufficient income, limited access to vital services, and an inability to fulfill basic human needs. Erude, Onavwie, & Okereka (2023) described poverty as the deprivation of essential necessities that give life meaning. Thus, an individual is considered poor if their income falls significantly below the poverty line and they lack real access to fundamental services such as healthcare, adequate housing, and education. Former World Bank President James Wolfensohn, as cited in Itiveh, (2022) argued that the most severe form of poverty occurs in resource-rich nations, predominantly in developing countries. This suggests that poverty and inequality often stem not from a lack of resources but from inefficient resource management and unequal distribution. In Nigeria the rising rate of poverty has become a significant concern. Despite being classified as a resource-rich nation and the second-largest economy in West Africa (OPEC, 2015 in Etim, & Daramola 2020), Nigeria also holds the title of Africa’s largest economy by population and ranks as the 22nd largest economy globally. However, according to a 2023 report on the global population living in extreme poverty, 12% of those affected reside in Nigeria (Sasu, 2023). Over the years, the Nigerian government has implemented various poverty alleviation programs, including the National Poverty Eradication Programme (NAPEP), Better Life for Rural Women, the National Directorate of Employment, and the Mass Mobilization for Social and Economic Recovery (MAMSER). Other initiatives, such as the Green River Basin Development Authority (RBDA) and the Family Economic Advancement Programme, have also been introduced. Most recently, the Federal Ministry of Humanitarian Affairs and Poverty Alleviation was established to focus on these efforts. These programs, agencies, and ministries were developed under successive governments to promote informal economic activities and reduce poverty. According to Ojima (2024), the informal economy has emerged as a key strategy for poverty alleviation in countries with large informal labor markets, providing employment opportunities for marginalized populations. It encompasses all economic activities that are not regulated by the government or included in the formal labor market. This sector includes activities such as street vending, domestic work, small-scale agriculture, and micro-enterprises, which contribute significantly to the livelihoods of many individuals, especially those in low-income communities. The informal sector serves as the lifeline for many low-income earners residing in rural areas. It encompasses that segment of the national economy whose activities are neither taxed nor formally monitored or included in the National Productive Index. This sector primarily engages in small-scale production of goods and services. A clear connection exists between poverty and the operations of the informal economy. In sub-Saharan Africa, a significant portion of the population heavily relies on this sector for their livelihoods. Most informal economic activities are rooted in traditional artisan practices, which have sustained communities over time. Collier (2007) in Yelwa & Babalola (2022) noted that the United Nations' Sustainable Development Goals recognize the informal sector as playing a crucial role in poverty alleviation, yet it has not received the level of support and encouragement it deserves, despite some government initiatives. Nonetheless, economists argue that the informal sector offers a viable alternative for employment generation and addressing the challenges of poverty. According to Oladipo and Eniola (2021), informal enterprises have the potential to generate jobs, enhance income levels, and reduce poverty by providing a buffer against unemployment in the formal sector. Expediently, informal businesses provide economic opportunities to individuals who might otherwise remain unemployed due to the lack of education, capital, or formal employment opportunities. Local traders, artisans, and farmers are integral to the survival and economic sustenance of most communities in Nigeria as highlighted by (Ojima, 2024). The success of informal economic activities in such regions is largely driven by the availability of micro-credit, low entry barriers, and the flexibility of working hours. Despite the crucial role that the informal economy plays in alleviating poverty, it faces numerous challenges, including lack of access to formal credit systems, limited business support, and vulnerability to economic shocks. According to Gbenga, Ita., Eja, Ojah, & Okon,. (2023), informal workers often operate in a legal vacuum, with no social protections or guaranteed job security, making them highly susceptible to exploitation and poverty traps. While the informal sector contributes significantly to economic output, Nigeria still harbors a significant portion of the global poor, with many people living below the international poverty threshold. Upon this premise the study seeks to examine their role in alleviating poverty among low-income groups in rural areas such as Oye Ekiti. 1.2 Statement of the Problem In recent times. poverty remains widespread among the low-income population despite measures taken by government, Nigeria's poverty rate continues to rise. According to the 2022 Multidimensional Poverty Index (MPI), 40.1% of Nigerians are considered poor, while 63% experience multidimensional poverty (National Bureau of Statistics, 2022). Similarly, the World Bank reported in 2023 that 46% of Nigerians, approximately 104 million people, live in poverty. These report further highlighted that sluggish economic growth and increasing inflation have pushed even more Nigerians below the poverty line. In rural Ekiti, where agricultural activities dominate, many households depend on subsistence farming and micro-enterprises for survival. However, these activities are often vulnerable to environmental, economic, and social challenges that hinder sustainable poverty alleviation. While the informal economy provides essential employment and income opportunities for many individuals, its impact on long-term poverty alleviation remains unclear. Although Previous studies, such as those by Erude, Onavwie, & Okereka (2023) have highlighted that the informal economy in Nigeria contributes to poverty reduction. Anecdotal evidence by Ekpounobi & Maikujeri (2022) suggests that while some individuals benefit from informal work, others continue to experience persistent poverty due to a lack of access to resources, training, and economic stability. Thus, understanding the dynamics of informal economic activities in Oye Ekiti and how they contribute to poverty alleviation is vital for designing effective poverty reduction strategies. Unarguably, existence of limited research on the effectiveness of the informal economy in reducing poverty specifically in Oye Ekiti has led to gaps in understanding how informal economic activities can be leveraged to address the underlying causes of poverty in the region. . The research will seek to answer questions related to the role of informal economic activities in alleviating poverty, and whether specific informal practices such as street trading, small-scale farming, and artisanship provide sustainable solutions to poverty in the area. A key concern is how the informal economy in Oye Ekiti can be better integrated into formal economic structures to improve its poverty-reducing potential. 1.3 Objectives of the Study The primary objective of this study is to examine the role of the informal economy in alleviating poverty among low-income groups in Oye Ekiti. Specifically, the study seeks to: i. investigate the types of informal econosmic activities prevalent in Oye Ekiti. ii. assess the contribution of the informal economy to poverty reduction among low-income households in Oye Ekiti. iii. assess the role of informal economy in improving income level and living standards households in Oye Ekiti. iv. assess the role of informal economy on employment generation and access to basic amenities among low-income households in Oye Ekiti. 1.4 Research Questions The study will seek to answer the following research questions: i. What are the predominant informal economic activities in Oye Ekiti? ii. How do informal economic activities contribute to poverty alleviation among low-income households in Oye Ekiti? iii. What is the role of informal economy on improving income level and living standards households in Oye Ekiti? iv. What is the role of informal economy on employment and access to basic amenities among low-income households in Oye Ekiti? 1.5 Research Hypotheses Ho: Informal economic activities do not contribute to poverty alleviation among low-income households in Oye Ekiti. Hi: Informal economic activities contribute to poverty alleviation among low-income households in Oye Ekiti. 1.6 Significance of the Study This study is significant to multiple stakeholders. For policymakers and development agencies, the research provides insights into the potential of the informal economy in addressing poverty in rural areas, such as Oye Ekiti. Understanding the strengths and limitations of the informal sector will inform policies that enhance its capacity to reduce poverty and promote sustainable livelihoods. By identifying the specific challenges faced by informal workers, the study can help design targeted interventions that improve access to credit, business training, and social protections for informal workers. For local government authorities in Ekiti State, the study highlights the importance of supporting the informal sector as a viable poverty-reduction strategy. It provides evidence-based recommendations on how to improve infrastructure, access to finance, and skills development for informal workers in rural areas. Furthermore, at the societal level, this research reinforces the importance of inclusive economic development. By acknowledging the contributions of the informal economy, the study advocates for broader economic opportunities and support systems for low-income individuals in rural areas. This, in turn, could lead to greater social and economic equity. Empirically, the study contributes to the growing body of knowledge on the role of the informal economy in developing countries, particularly in the context of sub-Saharan Africa. It also adds to the academic literature on poverty alleviation strategies, especially in rural and underserved areas. 1.7 Scope of the Study This study focuses on the role of the informal economy in alleviating poverty among low-income households in Oye Ekiti, a rural community in Ekiti State, Nigeria. The content scope of the study includes an exploration of the types of informal economic activities in the region, their contribution to poverty reduction, standard of living, access to basic amenities and infrastructural development. The study will primarily focus on individuals engaged in street trading, small-scale agriculture, and other informal businesses. The geographical scope is limited to Oye Ekiti, and the study will include both male and female participants involved in informal economic activities. 1.8 Limitations of the Study Like it is in the character of every research endeavor, one of the limitations of the study is the difficulty in accessing comprehensive data on informal economic activities in Oye Ekiti, as many such activities operate outside the formal economic structures and are not well-documented. Additionally, the study is limited by the resources available for fieldwork, which may restrict the scope of interviews or the number of participants involved. Another limitation is the potential bias in self-reported data from informal workers, who may overestimate or underestimate their economic activities to enhance their perceived income levels. 1.9 Operational Definition of Terms Informal Economy: Theses are economic activities that are not regulated by the government or included in formal labor statistics, including street vending, small-scale agriculture, and artisanal work. Poverty: This is the inability of an individual or husehold, people or communities to provide for himself or themselves the basic or essential minimum standard of living best. Poverty Alleviation: These are efforts and strategies aimed at reducing the incidence of poverty, improving living standards, and enhancing economic opportunities for low-income individuals. Low-Income Households: Families or individuals whose income is below the poverty threshold, typically struggling to meet basic needs such as food, shelter, and healthcare.