Nigeria’s domestic trade problem is not primarily informal; it is fundamentally structural. For many years, Nigeria’s domestic trade challenges have been explained mainly as a problem of informality. Markets are often described as disorganized, traders as unregistered and services as fragmented. While these descriptions are not entirely wrong, they do not tell the full story. The real challenge facing domestic trade in Nigeria is not informality itself, but weak and poorly designed structures.
This distinction is important because how a problem is defined shapes how it is addressed. When informality is treated as the main issue, policy responses tend to focus on registration, taxation, enforcement and compliance. When structural weaknesses are identified as the core challenge, attention shifts to infrastructure, systems, services and coordination. In Nigeria, far more effort has gone into enforcement than into fixing the systems that the domestic trade depends on.
As a result, informality continues, not because traders and businesses reject reform, but because the underlying trade environment makes informal arrangements the most practical option.
- Domestic trade is an economic infrastructure
Domestic trade is the backbone of any competitive economy. It determines how goods move from farms and factories to markets, how prices are set, how risks are shared and how value is kept within the economy. In the countries where domestic trade works well, it is barely noticed. Goods move smoothly, logistics are reliable, services are standardized and businesses can grow with confidence.
In Nigeria, the situation is different. Domestic trade systems are fragmented and under-invested. This leads to high costs of doing business, inefficient logistics, unstable prices, significant post-harvest losses and limited opportunities for small and medium enterprises to scale.
Consider a simple example. A tomato grown in northern Nigeria may pass through several markets and transport stages before it reaches a consumer in the south. Along the way, poor roads, inadequate and high cost of cold storage, unreliable power and uncoordinated logistics reduce its value. The farmer and trader are not the problem. The absence of an integrated trade system is.
To address this, markets must be treated as economic infrastructure, not just social spaces. Government at all levels can support market redevelopment that integrates storage, power, sanitation, security, transport access and basic data systems. The private sector can invest in shared logistics, warehousing and aggregation services that reduce costs for many businesses at once. Development partners can support pilot projects that demonstrate how integrated market hubs reduce losses and stabilize prices.
- Why informality persists
Much of the informality in Nigeria’s domestic trade is not a deliberate rejection of regulations. It is an adjustment to difficult conditions. When infrastructure is unreliable, expected services are unavailable or inadequate, and enforcement is inconsistent, informal systems often work better than formal ones.
Many markets function as open spaces for buying and selling rather than organized commercial centers. Wholesale and retail activities are poorly separated; there will be inefficient pricing. Essential services such as warehousing, cold storage, quality control and trade finance are either unavailable or too expensive. Where they do exist, they are often informal because formal participation offers few clear advantages.
Take the example of a grain trader without access to standard storage or affordable finance. Cash transactions and informal networks become the only realistic way to operate. Registering the business without addressing storage, finance and logistics does little to improve productivity or income.
A more effective approach is to improve infrastructure and services first, then strengthen enforcement gradually. Financial institutions can help by developing trade-linked finance products that are tied to inventory and warehouse receipts. Market associations can work with service providers to organize shared storage, aggregation and basic quality control.
- Why higher production does not always mean better results
Nigeria has made significant investments in boosting production, especially in agriculture and small-scale manufacturing. Yet higher output has not consistently led to lower prices for consumers or higher incomes for producers. This gap is often misunderstood.
The main losses occur between production and consumption. Weak coordination, unreliable power, poor logistics and fragmented services erode value at every stage. Each transfer adds cost, risk and delay.
For example, improved cassava yields mean little if the processors lack stable electricity, while transport costs remain high and storage losses continue. The gains made on the farm are lost before the product reaches the market.
To address these, better coordination is needed. Agricultural, trade, transport and energy policies should work together so that productivity gains are supported by downstream infrastructure. The private sector can develop processing and logistics clusters that shorten value chains. State governments can focus on strengthening the trade corridors that link production areas to major urban markets.
- Why formalization alone falls short
Formalization is often treated as a solution in itself. But in reality, efficiency usually comes first. When systems work well, businesses are more willing and able to formalize.
Registering traders without fixing logistics does not reduce costs. Increasing levies. Improving services does not boost competitiveness. Introducing digital platforms without physical trade infrastructure simply moves inefficiencies online. An online marketplace still depends on roads, storage, power and logistics to get the physical product to the buyers. Without improvements in these areas, digital tools have a limited impact.
Regulators can make compliance more attractive by linking it to real service improvements. Technology providers should prioritize tools that integrate payments, logistics and inventory management. Micro, small and medium enterprises (MSMEs) can organize cooperatively to invest in shared services that improve the efficiency of their businesses
- Rebuilding domestic trade systems
Nigeria needs a deliberate effort to rebuild domestic trade systems. This includes modern wholesale markets that are designed and operate as integrated hubs. Such hubs are expected to have efficient logistics networks, energy-enabled storage and processing facilities, standardized trade services and better use of data for market coordination.
Countries that have successfully transformed domestic trade focused first on building systems that worked. Once participation became efficient and profitable, formalization followed naturally.
A national strategy for domestic trade and market infrastructure can complement industrial and agricultural policies. State and local governments can prioritize functional market redevelopment rather than cosmetic upgrades. Investors and development partners can support scalable models that deliver both economic and social returns.
- Moving from rhetoric to practical reform
Nigeria’s goals of industrialization, food security and regional competitiveness depend on strong domestic trade systems. Informality is not the enemy. It is a signal that the systems need improvement.
By focusing on infrastructure, services and coordination, Nigeria can make formal participation the most sensible choice for businesses. When domestic trade works well, productivity gains will translate into real incomes, prices will become more stable, and enterprises will experience growth.
The key question is not whether Nigeria should formalize domestic trade, but whether it is ready to build the structures that make formality work.
Dr. Aremu Fakunle John is a Senior Agricultural Economist, Management consultant, and Public Policy Expert whose work spans climate-smart agriculture, nutrition, sustainable business and development economics. He is based in Abuja and can be reached via fakunle2014@gmail.com +2348063284833
