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Sustainability and adverse budget implication is a major cause for worry across board as discussions on the planned minimum wage increase continues.
While labour costs in Nigeria are relatively cheap at $50 dollar a month, it is largely unproductive.
“What we have now is not a living wage; so already workers are not motivated. The question of sustainability is a question of priority. The government need to find the money. Funds should be put into the society so that people can afford to meet their basic needs. N18, 000 won’t help you do that,” said Charles Anudu founding Managing Director and Chairman of The Candel Company Limited, a major player in the Nigerian Agricultural industry.
“Labour in Nigeria is demoralized labour. Everybody is looking at how he can damage something or steal something simply because he has to survive.”
In 2011 when the last national minimum wage increase of 140 percent from N7,500 to N18,000 a month was implemented, the total Federal Government (FG) budget for the period increased by 11.3 percent to N4.9 trillion from N4.4 trillion in 2010.
Recurrent expenditure also spiked by 19 percent to N2.5 trillion in 2011 from N2.1 trillion in 2010. The new minimum wage should on the average be in the region of N61, 250 a month equivalent to $170 a month going by demands of the Nigerian Labour Congress (NLC) for between N56,000 and N66,500. An increase of that magnitude (240%) if implemented, could see the FG recurrent budget jump by 34 percent, according to BusinessDay calculations.
Even without a minimum wage hike since 2011, the FG recurrent budget has surged by 40 percent between then and now.
The FG budgeted N3.49 trillion as recurrent expenditure for 2018 (a N1 trillion increase from 2011 levels), and N2.43 trillion for capital expenditure.
Seven years down the line since that last increase many subnational governments struggle to meet their financial obligations to workers, with states like Kogi, Osun and Imo leading the pack with unpaid salary arrears of more than ten months.
As is the trend in Nigeria, recurrent expenditure has always exceeded capital expenditure, an increase in minimum wage across board will further stretch state governments’ debt burden already estimated to be over 150 per cent of their revenue on average, and approximately one fifth of the total government debt.
Ayodeji Ebo, MD, of Lagos-based financial advisory, Afrinvest said, “We should consider the following before implementing the increase; are we going to borrow to sustain the increase? Or, how are we going to fund the increase? A lot of states despite increase in FAAC allocation are still unable to pay salaries.
“Again, is this increase going to be on the federal level only or across board to include states and local government?”
“The growing need for the government to increase capital spending especially on the energy and transport infrastructure side will drastically suffer because their focus will be now on paying salaries and already in Nigeria the civil service just pays people for doing essentially nothing,” Ebo concluded.
According to economics consulting firm Financial Derivatives Company, the country needs to invest about $15 billion annually for the next 15 years to be able to sufficiently bridge the rapidly widening infrastructure gap across the country.
Yvonne Mhango, an economist at Renaissance Capital said, “In term of wages generally, if you look over the past five years, real wages have fallen. Part of why we have seen consumer spending come under pressure. So I think talks about wage increase, if implemented is a positive one for real wage and for consumer spending.”
A $169 minimum wage will put Nigeria at par with the likes of South Africa, Burkina Faso, Algeria and Egypt.
The global chief economist and head of macro strategy Renaissance Capital, Charles Robertson said, “There is a perspective about keeping yourself competitive internationally. Right now according to my data Nigeria has one of the lowest minimum wages in the world. Nigeria at $50 per month, Ghana $49 and Egypt at $67,”
“A 100 percent increase is saying the average Nigerian minimum wage needs to be 30 percent above minimum wages like Egypt and if you are trying to compete in the world economy that is always a challenge. People should not look at it purely in Nigerian focus; you have to see that we are a world economy, we are trying to attract investors, how expensive should our wages be to attract investment”
“looking at how in the last couple of years, real wages have fallen in Nigeria, and how unimaginable it is to live on $50 a month, at the moment there is room for a rise but the question is how much of a rise?” Robertson concluded.
OLALEKAN IPELE & BUNMI BAILEY
