Salaries and wages in Africa’s biggest economy grew in the second quarter of 2022 at the slowest pace since Q3 2020, when the country plunged into the COVID-19-induced recession, a BusinessDay analysis of official data shows.
According to new data from the National Bureau of Statistics (NBS), the compensation of employees (wages and salaries) in real terms fell to 3.93 percent in Q2 from 6.48 percent in the previous quarter.
It dropped by 15.51 percentage points on a year-on-year basis from 19.44 percent in Q2 2021.
Analysts attributed the slow growth to the high cost of doing business which has been elevated by energy prices and foreign exchange (FX) volatility, high base effect, and the talent exodus from the country, popularly called ‘japa’ (a Yoruba word for “run quickly”).
The current macroeconomic environment has made a lot of companies reluctant in raising salaries this year, said Ayorinde Akinloye, an investor relations analyst at Seplat Energy Plc.
“And as a business facing the high cost of diesel to run your generator and paying more rent, you don’t want to increase your operating expenses by increasing salaries where revenue is not growing as much as before,” he said.
Temitope Omosuyi, an investment strategy analyst at Afrinvest, said the slow salary and wage growth is a reflection of high base effect. “The economic recovery in Q2 was a high jump. So normally you would expect that recovery to reduce this year.”
The country has been grappling with double-digit annual inflation since 2016, with the headline inflation hitting 20.7 percent in September – a 17-year high, according to the NBS.
The high inflationary pressure, which has been spurred by FX shortages and rising energy costs, has increased operating costs for companies, especially manufacturers.
BusinessDay findings from the financial results of some listed fast-moving consumer goods companies showed their the costs of sales rose by 25.3 percent to N746.6 billion in the first half (H1) of 2022 from N595.4 in the same period last year.
A breakdown of the findings shows that the cost of sales for BUA Foods, Cadbury Nigeria, Dangote Sugar Refinery, Guinness Nigeria, Nestle Nigeria, Nigerian Breweries and Unilever Nigeria rose by 16.1 percent, 35 percent, 42 percent, 17 percent, 35 percent, 18.2 percent and 22.3 percent respectively.
“Industry players continued to face higher costs of operation arising from increased input costs, given the depreciation of the naira, FX liquidity constraints, and structural rigidities,” Cordros Securities said in a recent consumer goods report.
Nigeria’s inability to supply and distribute sufficient electricity has left manufacturers at the mercy of alternative energy sources such as generators that consume diesel and petrol, which takes 40 percent of the total production cost, according to the Manufacturers Association of Nigeria (MAN).
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For diesel, the Russia-Ukraine crisis pushed up its price by 174.2 percent to N789.9 per litre in September from N288.1 per litre in January, data from NBS show.
In a recent presentation, Segun Ajayi-Kadir, director general at MAN, revealed that manufacturers spent N67.7 billion on alternative energy in H1 this year, a 51 percent rise from N45.0 billion in the same period of last year.
Apart from energy prices, the naira has depreciated against the dollar in the official and parallel markets in recent months, dropping to as high as 440/$1 and 900/$1 respectively.
“These macroeconomic headwinds that businesses are facing are eating deep into their financial performance affecting their ability to increase personnel cost,” said Damilola Adewale, a Lagos-based economic analyst.
Adewale said many businesses are trying to maintain the current level of their personnel costs. “This must have led to a slowdown in salaries and wages.”
The economic and security challenges in the country have spurred the growing talent exodus from Nigeria.
The issuance of study visas, a pathway for immigration, has surged in recent years. In June 2022, a total of 65,929 sponsored study visas (scholarships) were granted to Nigerians by the United Kingdom, a 686 percent increase from 8,384 in 2019.
The number of study permits granted by Canada to Nigerians increased by 30.3 percent to 13,745 in 2021 from 10,550 in 2020.
“People really migrated this year, and the impact is more felt in the corporate environment than last year,” said Ibrahim Tajudeen, director of research and strategy at Chapel Hill Denham.
Moses Ojo, a Lagos-based economic analyst, added the ‘japa’ syndrome has taken a number of skilled people out of the country, reducing the number of employees. “Quite a number of companies are searching for replacements e.g. the financial sector.”
