Statutorily, and considering the current economic realities of Nigeria, there can be no gainsaying the fact that a new minimum wage is due Nigeria’s labour force.
Under section 3(1) of the National Minimum Wage Act, 2019, every employer shall pay a national minimum wage of not less than 30,000 naira per month to every worker. This rate is applied for five years from its adoption until it is reviewed.
But the current spat between the Federal Government of Nigeria and the Nigeria Labour Congress stems from the government’s ability/inability to pay what many would consider the labour force’s condign wages.
However, according to the International Labour Organisation (ILO), it is important to have statutory minimum wages to protect workers against unduly low pay. The organization says minimum wages help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection. It says minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women.
But new minimum wages akin to what the labour unions are requesting from the government would outright engender a U-turn to the old order of hefty recurrent budget and lane capital budget.
Out of the total sum of N28.7 trillion budget for the 2024 financial year approved by the National Assembly, N9.99 trillion is allocated to capital expenditure, while N8.76 trillion is for recurrent (Non-debt) expenditure.
From an analytical point of view, a budget with higher capital expenditure than recurrent is not only a driver of economic growth, but it also impacts individual citizen’s quality and way of life.
“In this regard, we concur with the 2019 submission of the Nigerian Institute of Social and Economic Research (NISER) that the only way to bring about a meaningful influence on the economy is to monitor and evaluate funds that are specially intended for capital expenditure and capital projects, notes a think-tank, Independent Media and Policy Initiative (IMPI).
The think-tank added, “The disequilibrium between capital and recurrent expenditures has been eventually corrected. For the first time in the current democratic dispensation, the 2024 budget, which is the first in the tenure of the President Bola Tinubu administration, has more funds allocated to capital expenditure than recurrent. Previous administrations had failed to capitalise on two oil booms to boost infrastructural development in the country through higher capital votes in annual budgets.”
Between 2006 and 2013, the national economy grew between 6 and 8 percent, according to World Bank figures. yet the increased revenue was channeled into feeding public servants. The recurrent expenditures in those years were always bigger than the allocation for capital expenditure, which trend the removal of subsidies by the Tinubu administration had superimposed. With the impending mega-wages, that equilibrium is expected to change.
The minimum wage debacle for the labour unions has become much like being between the devil and the deep blue sea. If the government accedes to the demands of Labour at least N100,000, the government may resort to the double sledgehammer of scaling down on capital projects and downsizing its workforce, which would further plunge Nigerians into poverty, according to development economist at Adeleke University, Professor Tayo Bello. He added that in such a scenario, the government would have to increase its borrowing spree to be able to stay afloat, which would plunge the government into a fiscal quagmire.
An economist, the president of the Independent Shareholders’ Association of Nigeria, Moses Igbrude, notes that any scaling down of the country’s workforce in the health and education sectors would boomerang on the country’s long-term development goals.
Labor unions argue for an increased minimum wage in response to the escalating living expenses in Nigeria. As per the National Bureau of Statistics, Nigeria’s inflation rate reached 21.91% in February 2023, the highest in nearly twenty years. This surge has significantly diminished the purchasing power of Nigerian workers, rendering it increasingly challenging for them to afford essentials like food, housing, and healthcare.
Union representatives assert that Nigeria’s current minimum wage ranks among the lowest in its region, trailing behind countries such as South Africa, Ghana, and Senegal. They posit that a higher minimum wage could help alleviate Nigeria’s profound income inequality and poverty levels.
Joe Ajaero, President of the NLC, was unequivocal in his recent remark, emphasizing the stark reality: “Following the removal of fuel subsidies, the landscape has shifted drastically.”
Ajaero elaborated that the current minimum wage of N30,000 is grossly inadequate, failing to cover even the basic needs of a family of four, let alone the mounting costs of transport, food, housing, education, and healthcare. His calculations painted a grim scenario, estimating the monthly cost of sustaining a family of six at a staggering N270,000, exclusive of expenses for communication, religious commitments, security, and social needs. He argued that the NLC’s proposed wage increase is not arbitrary but a meticulously considered response to the severe challenges confronting Nigerian workers.
On the other hand, the Federal Government has proposed a new minimum wage of N62,000, marking a 107 percent increase from the current wage level. The government has firmly opposed the unions’ request for a N250,000 minimum wage, arguing that such a substantial increase would have dire economic consequences for the country. Mohammed Idris, Minister of Information and National Orientation, emphasized that a national minimum wage of N250,000 would result in a cumulative bill of what would potentially destabilize the economy and jeopardize the welfare of over 200 million Nigerians.
“The government’s priority is to ensure fair compensation for Nigerian workers, but it must also consider the potential for widespread job losses, especially in the private sector,” Minister Idris stated.
The government argues that implementing such a high minimum wage would necessitate drastic cuts in other government expenditures or substantial tax hikes, which could ripple through the economy, causing job losses, reduced investment, and economic slowdown.
“We cannot afford to jeopardize the entire economy to meet union demands. It is crucial to balance worker needs with broader economic realities facing our country,” a government source emphasized.
Furthermore, the government highlighted that many private sector employers would struggle to afford the proposed higher minimum wage, potentially leading to widespread layoffs and business closures. This outcome, they contend, would ultimately harm the very workers the unions aim to protect.
The recent removal of fuel subsidies and the managed float of the naira have increased nominal revenues for states. However, due to soaring inflation, the actual value of these additional revenues has diminished. While states have seen a slight rise in net deductions, the overall impact on revenue growth remains limited. This situation underscores the challenges of considering further wage hikes, as any significant revenue shock or increased personnel costs could strain state finances.
In terms of revenue growth and wage considerations, although average recurrent revenue growth rates exceed personnel-related cost increases, many states have yet to implement the 2019 minimum wage. This reflects concerns that any significant revenue shock or rise in personnel costs could pose financial challenges for state governments. Consequently, governors across Nigeria have strongly opposed the organized labor’s wage proposals, stating that even a minimum wage of N62,000 is unaffordable, let alone N250,000.
Igbrude notes that any further pruning down of the country’s workforce in the public sector would ultimately hurt the economy of the country with a dwindling private sector.
But according to a financial economist at Auchi Polytechnic, Zakari Mohammed, the move by the federal government to remove subsidies has already been negated as the government is paying more on subsidies than it did before subsidies removal. That is an indication that the government does not have as much to spend as is being perceived by the public.
Added to that, the labour unions and the tripartite committee on minimum wage do not seem to be in sync.
Alluding to the development, the Director General of the Nigerian Employers Consultative Association (NECA), Adewale Oyerinde, said Labour needs to consider economic dynamics to ensure that the proposed wage is sustainable. This comes as the Nigerian manufacturers back N60,000 minimum wage proposal, as they claim the claim by the labour force is unrealistic.
He also said, “You get to a point where you look at your survival because without enterprise sustainability, we won’t even be talking of jobs. Those are the big realities and those are the things the private sector is taking into consideration, that rather than increase salaries or increase wages to a level that labour is demanding and face the consequences of job losses, we would rather stay within the realm of what is affordable for now and protect jobs and keep our ability to create jobs. Those are the big fundamental issues that we need to address.”
Despite agreeing to the 62,000 naira figure proposed by the government, Oyerinde noted that it was a painful decision for the private sector, bearing in mind the various parameters that need to be considered.
“For us in the private sector, the reality is this, with the current reality that we face, the current challenges that we face, we feel 62,000 (naira) will painfully, and I must re-emphasise that the team of the organised private sector painfully agreed to that 62,000 (naira) based on certain conditions that government will also take into account. It is not as if the private sector is Shylock, it is only driven by profit. There are so many parameters that we have to consider before we say for the private sector, a cutting point is 62,000 and in the process now, the tripartite committee has completed its work,” he said.
He added, “There are two contexts to that issue. First, labour is currently on the exclusives list, that is, it is handled at the national level, so all issues related to labour are within the domain of the federal government. That creates a different dynamic.
“If it is in the concurrent list now, then we can say each state will handle their minimum wage. Now, the challenge is this, if you leave it at the state level, the potential to protect the most vulnerable worker, which the minimum wage is supposed to protect, that capacity or that ability will be seriously compromised and you have different subnationals coming up with different ridiculous figures.
“The minimum wage is the least wage below which nobody must pay. It is not a salary increase, it is not a general salary award, it is not a wage award,” he said.
In the same vein, the Minister of Labour and Employment, Nkeiruka Onyejeocha stated that it is impossible to pay what the labour unions are demanding because some states are yet to pay the ₦30,000.
Onyejeocha said the Federal Government is not the sole decider of a new minimum wage as it must be determined by state governments and the Organised Private Sector.
According to her, some state governments still can’t pay the ₦30,000 minimum wage agreed by the tripartite committee in 2019 let alone the ₦250,000 wage demand by the Nigeria Labour Congress and the Trade Union Congress.
It is worth noting, though, according to the ILO, that: “In some countries, more than half of all wage earners who are entitled to the minimum wage are paid below the legal floor.
Recent studies have highlighted that wage hikes contribute to rising personnel costs, a trend observed over recent years. However, the overall recurrent revenue has not kept pace with these increasing costs. Fiscal constraints in 2019 reportedly hindered the adoption of the current minimum wage, exacerbated during the COVID-19 pandemic by a notable surge in personnel expenditures relative to total recurrent revenue. These developments underscore the unintended impacts of federal policies on inflation and poverty rates, exacerbated by the diminishing real value of additional revenues available to states. Professor Tayo Bello emphasized the critical necessity of balancing fiscal decisions delicately in response to these challenges.
He added that the discourse underscores the importance of aligning any wage increment with economic realities at the subnational level, prioritizing affordability and the capacity to pay. “While there is broad consensus on the need for a minimum wage hike, it must be realistic and sustainable for employers, particularly in the private sector,” he said.
