Against the biting economic crunch and rising inflation ravaging the purchasing power of the average Nigerian, the minimum wage conversation has been elevated to a fever pitch. Headline inflation as of May 2024 stands at 33.95 percent data from the Nigeria Bureau of Statistics indicates.
Food inflation, which is choking Nigerians now reached 40.66% in May 2024 which is a significant increase from the 24.82% recorded in May 2023. Commodities’ prices have spiked. Taken together with rising transportation and the impacts of the naira devaluation, it is indeed, a difficult time to be a low and medium-income earner in Nigeria.
According to Trading Economics, the transportation sub-index of the CPI basket in Nigeria increased to 606.40 points in April of 2024 from 529.30 points in April of 2023. CPI Transportation in Nigeria averaged 210.94 points from 2006 until 2024, reaching an all-time high of 606.40 points in May of 2024.
Worried by the rising cost of living, Nigerian workers began to demand an upward review of the national minimum wage which is still pegged at N30,000 per month. The Nigerian Labour Congress (NLC) began the demand for a review of the National Minimum Wage in 2023 following the removal of fuel subsidy by President Bola Ahmed Tinubu on May 29, 2023. They went into a negotiation with the federal government pressing for N495,000. The government offered N60,000 per month. The NLC after a series of negotiations later lowered their demand to N250,000.
After the negotiation stalled, the Nigerian workers’ unions down-tooled nationwide in June 2024 to press the demand for to the implementation of a new minimum wage to help workers ease the rising cost of living. FG promised a minimum wage of above N60,000, and NLC called off the strike. But the FG raised its offer by just N2000 pegging it at N62,000. Piqued by the FG’s offer, the NLC is considering heading to the trenches again if the FG doesn’t offer a wage good enough to ameliorate the ripple effects of its reforms and policies on fuel subsidy removal, free float of the naira, and devaluation of the naira.
The state governors have also joined the conversation, claiming they can’t pay above N60,000 minimum wage. The organized private sector seems to be comfortable with the N60,000 minimum wage as well. However, some states like the southern states want a localized minimum wage. “The Forum discussed the minimum wage issues demanded by labour and unanimously agreed that the minimum wage should be reflective of the cost of living and that each state should be allowed to negotiate its minimum wage,” the Southern Governors said in a statement after their meeting in Lagos, June 28, 2024.
Whilst the horse-trading continues, one thing is certain – an upward review of the minimum wage that might not be less than N60,000 across the country.
But what would be the likely impact on workers? What would be the impact on inflation? What would be the impact on the state governments? What would be the impact on organized private sector and small businesses?
Historically, this is not the first time minimum wage will be reviewed. There are several instances where wages were raised. But the Udoji Award of 1972 and the Mini wage review from N18,000 to N30,000 in 2019 are unique examples to briefly review their impacts on the economy.
In the early 1970s, the price of crude oil surged and Nigeria’s petrol dollars rose to unprecedented levels.
Simon Kolawole wrote in the article “From Udoji Award to Oronsaye Report” that with so much money, Nigeria began to expand the size of government without paying the necessary attention to need, efficiency, and service delivery. “In 1972, the Udoji Public Service Review Commission was set up by the military government to examine the organisation, structure, and management of public service. In 1974, the commission made far-reaching reform proposals, but government was more excited about the recommended 100 percent increase in salaries and benefits across the board — to be backdated to 1972 and paid in arrears. That would be politically more popular and beneficial.” That happened despite warnings of consequences from economists. What happened was a devastated economy. Nigerians’ wen on import spree. Local manufacturing plummeted. “Unemployment spiraled. From 5.40% in 1973, inflation rose to 12.67% in 1974 and 33.96% in 1975.” It is what it is” Kolawole wrote.
That policy caused significant distortions to Nigeria’s economic fabric, which has continued to hunt the economy till today.
Fast forward to 2019 when the minimum wage was reviewed from N18,000 to N30,000. In 2019, inflation stood at 11.40 percent. After the implementation of the new minimum wage, by 2020, inflation had jumped to 13.25 percent, and by 2021, it reached 16.95 percent.
According to Yinka Ademuwagun, a Treasury & Investment Professional “in 2019, the minimum wage in Nigeria was set at N30,000, which was approximately $75 at the exchange rate at that time. Given the depreciation of the Naira, the equivalent of $75 today is around N110,000. This historical perspective suggests that a minimum wage of around N100,000 could be considered fair in today’s context, accounting for currency devaluation. Also, if you compound the minimum wage of 2019 using the average yearly inflation since 2019, you will have approximately N64,000 as the new minimum wage for 2024. This approach aims to protect the average Nigerian’s purchasing power by growing the minimum wage based on previous years’ inflation rates.”
With a N60,000 minimum wage, it’s unlikely inflation would be impacted that much considering inflation is currently at breakneck margins. However, there is usually a price reaction on goods and services with an upward review of minimum wage.
Commenting, Dr. Mustapha Shitu, the immediate past Managing Director of Kaduna State Enterprise Development Agency (KADEDA) said the new minimum wage when implemented should apply to all employees in Nigeria. but he is not too excited about the new minimum wage because of how the traders react to wage increments.
“Ideally, the minimum wage is the least paid to any kind of employee within a system e g., a security guard in a house, a house help, a driver etc. The SMEs are affected because the purchasing power of the citizens has increased, which should ideally mean citizens should be able to buy more. Unfortunately, in Nigeria it is the reverse, an increase in minimum wage automatically means an increase in prices of goods and commodities. Therefore, there is little to no effect positively on the lifestyle of the citizens” he said.
The MSMEs expert also opined that a new minimum wage “leads to a reduction in the SMEs because when they increase prices some may not get patronage as they used to and can no longer sustain their lifestyle, hence, delving into the purse of the business to survive which ultimately runs down the business.”
On whether the government would be capable of paying a new minimum wage of up to N60,000 or more he said “It is very feasible to pay. State governments are playing politics. If the governors take advantage of the resources in their respective states, and draw up sources of revenue generation (i.e, tax) they can do it. For example, the states can build new roads and toll them to generate more revenue. Again if they draw up a policy that says each house should maintain its surroundings (gutter, grass etc) to assist govt in sanitation defaulters would be levied to generate money.”
He also tasked the government to reduce wasteful spending. “The government should reduce its cost e.g., the number of aids, cars in convoys, and unnecessary foreign trips… instead, the funds should be channeled to more useful projects within the states” he noted.
The DG Nigeria Employers’ Consultative Association (NECA), Mr. Adewale Oyerinde in an interview monitored on Raypower FM recently said the MSMEs will be the biggest hit with a new minimum wage as their cost of operations will balloon with a new minimum wage. He warned that some MSMEs may reduce the staff strength to survive whilst some may automate their operations if they have the capability.
According to him, a national minimum wage would be binding on all employers, whether the government or private.
In addition to the above, some employers may owe wages due to dwindling revenues and high-cost doing business. Thus, whilst the new minimum wage would excite the workers, their would be other unintended consequences that may hurt the economy as well.
