Perilous times on a naira payroll (Part 2)

Since Nigeria will not become an exception to the rule that the continued economic prosperity of the working-class is vital for national economic progress, then certain issues need to be addressed: three priorities are clear: We need to boost economic productivity, reduce income inequalities, and expand economic opportunities for most our people.For a start, organizations (both government and businesses) may not be able to raise salariesmerely as a response to inflation. Firstly, they must have the means to initiate any pay rise, no matter how small. Secondly, they must be reasonably assured that such increases will be sustainable.

In business, gross margins on production or trade must expand sufficiently and sustainablyand overheads must also be within some measure of control. Also, governments require some improvement in assured revenues if they must initiate and maintain any meaningful pay increase. Anywhere in the world, government revenues are tied to local economic activities and global economic developments (mainly trade and investment flows). Hence, the fiscal health of government is determined by the economic health and progress of businesses which in turn aredriven, or at least, constrained by prevailing policy choices and system of incentives.

The foregoing lead to somepoints on the current situation and the way forward. One, this pathetic situation is largely due to an economic system that rewarded privileges more than value-creation. Two, there are no quick fixes for either government, businesses, or workers on their payroll. Three, solutions must be thought-out and implemented as part of a holistic, coherent agenda and the whole must represent a systemic shift to enhance competitiveness and value-creation. Now, we cannot simply ask: “what is good for the government?”. We must ask what is best for the economy. The question of what is best for business must also consider what works for a stable, secure and sustainable society.

On productivity, how we got here is due largely to a type of “prosperity” supported by limited economic value creation. It was largely about privileges, and this largely concealed the low levels of productivity in the economy. The amount of financial and physical capital available to the average Nigerian worker has been on the decline and the latitude for workers to apply themselves to value creating activities has been tightly constrained. Therefore, raising the productivity of Nigerian workers and hence of the organizations they work for is a primary step if we must restore a significant portion of the working class to middle-class status.

In any capitalist system, compensation for labour is a fraction of labour’s economic contribution. With a population that of less than 124 million in year 2000 to an estimated 189 million in 2017 and projections of up to 260 million by 2030, provision of critical infrastructure (energy, efficient transport systems, education, access to simple technologies, and quality healthcare) is a minimum requirement for economic progress and income growth. Beyond expending more funds, we need to re-examine existing models for these sectors and be quick to discard ormodify models and approaches that have so far failedus as a nation.

On income inequality, the Nigerian system in recent decades has progressively become notorious for ‘taking care of those at the top’ at the expense of lower cadre and mid-Tier workers, and indeed at the expense of the system itself. This trend is pervasive across both public and private sectors and it is evident from elective offices, the armed forces, to the civil service, the public liability companies. In addition to the privileges enjoyed by the top echelon of our workforce, this practice provides it beneficiaries more than enough cover against inflation while leaving the larger mass of workers almost hopelessly exposed to inflation and currency depreciation.

For example, the Nigerian Deposit Insurance Scheme (NDIC) in mid-2016 reported that only 2% of Nigerian account holders maintain a balance of more than N500,000 in their bank accounts. Only 2%! What about the 98%? This provides ample indication that access to the rewards of whatever productivity we achieve is concentrated in the pockets of a few! To the extent that compensation decisions are made by “those at the top”, the working-class has little influence over the matter. More instructively, this trend appears to reflect the drift in the country’s value system and has become a cultural norm.

On the need to expand economic opportunities, Nigeria cannot sit still with only tried, tested (and mostly failed) economic models and paradigms. Just like the telecoms reforms in the early 2000s brought about an economic revolution with benefits spread across social classes, it is critical to unlock opportunities in other sectors such as power, technology, education, manufacturing, and export-oriented processing. Relative to the economy’s size, the white-collar sector has become too small with most big businesses not showing significant growth to lift the grow their workforce or lift existing workers from peril to plenty.

For individuals,alternative, or diversified sources of legitimate income has never been more important. The model of exclusive dependence on the payroll has becomeobsolete as new realities emerge and must be embraced. Two options readily come to mind: innovate or relocate! In other words, start a new venture or move to another country. Shallow options such as loans or selling down assets to address what is a fundamental drop in real income are mere quick-fixes- unsustainable. Investing in a low risk, and non-time-consuming business while keeping one’s regular job is a viable option that many would needto explore.

The current situation requires dynamic, visionary, competent, and courageous economic leadership. Wise choices must be executed with fairness and sincerity andthe focus of policy choices must shift fromjust “the masses” or the rich to the economy itself. The Nigerian tenet of simply finding our way out in situations of chaos is no sign of greatness or leadership wisdom.

An illustration of this last point will suffice. For decades, members of the ruling class muscled their way through night-time traffic on third mainland bridge with security escort and sirens. Yet, those same individuals vacate their exalted offices after some years and join the same traffic queue. However, recent efforts by the Lagos state government to create functional bus-stops at key points along that stretch virtually eliminated the chaotic traffic and eliminated the need to use sirens. While the elite don’t use bus-stops, the problems created by the absence of functional bus stops affect both the ruling class and working class.

Back to the economy, this is instructive in at many ways: solutions that benefit the working-class will ultimately help the entire economy including the ruling class. Solutions that improve productivity are more sustainable than mere campaigns of concern for the people’s plight. Lastly, the safety, security, and stability of the society depends much more on most people finding legitimate economic opportunities rather than on a select few helping themselves on the people’s common wealth.

(Concluded).

 

David Adeoye, CFA

David, a deal adviser, corporate strategist, and business economist is a director at Fritova Economics.