Minimum wage negotiation and the nexus with food inflation

By Paul Igbinoba

In my opinion piece from last week, titled “Minimum wage negotiation: need for a pragmatic approach,” I took the position that perhaps an interim wage award should be considered, subject to review in two years’ time when the economy would have stabilised. This is because of the high inflation our economy is currently experiencing, due largely to a simultaneous steep devaluation of the naira and the largely successful removal of fuel subsidies. Inflamed passions during the minimum wage negotiation are likely to overlook the fundamentals of the economy and its ability to correct itself with the right monetary and fiscal policies in the short to medium term.

Read also: Labour doubts implementation of new minimum wage in May

As the government and other stakeholders grapple with the arduous task of guiding the economy back to a stable trajectory, they must not lose sight of the hardship Nigerians are going through, especially due to the unyielding inflationary pressure, though with a slight reduction in the rate of increase. In March 2024, headline inflation rose to 33.20 percent, compared to 31.70 percent a month earlier. The month-on-month increase of 3.02 percent was 0.10 percent lower than the 3.12 percent month-to-month increase in February 2024.

However, the big elephant in the room remains food inflation, which increased by 40.10 percent in March, compared to 24.45 percent in March 2023. It is noteworthy that month-on-month food inflation for March 2024 was slightly lower than month-on-month food inflation for February 2024 by 0.17 percent, which signals the deceleration of food inflation in the months ahead. However, the fact remains that food inflation is the key driver of inflation in Nigeria, which is certainly a serious cause for concern. This is compounded by the fact that Nigerians spend more than fifty percent of their income on food. According to a 2019 survey by the Nigerian Bureau of Statistics (NBS), Nigerians spent 56.65 percent of total household expenditure on food, with the balance of 43.35 percent spent on non-food items. This was corroborated by more recent data compiled in 2023 by Picodi, an international e-commerce organisation, which showed that Nigerians spend 59 percent of their income on food. A situation where about 60 percent of Nigerians’ total expenditure is in one expenditure category, food, which increases by 40 percent monthly due to inflation, is indeed dreadful. This certainly should be a key policy challenge and is at the core of the demand by the labour unions for an astronomical increase in wages during the ongoing minimum wage negotiations.

“However, the fact remains that food inflation is the key driver of inflation in Nigeria, which is certainly a serious cause for concern.”

The way forward is to plot a strategy to crash food inflation in the short to medium term with the support of all relevant stakeholders, including the Federal Government, the state governments, especially under the auspices of the Nigerian Governors Forum, petroleum refineries, relevant affiliates of the Nigerian Labour Congress, especially oil and gas and road transport sector industrial unions, and petroleum marketers, especially the Independent Petroleum Marketers Association of Nigeria (IPMAN). The strategy here is focused primarily on bringing down the cost of transportation by high-capacity passenger buses, trailers, and other high-capacity vehicles for transporting food items from the hinterland. It is encouraging news that Dangote Refinery has brought down the price of its diesel to N1000/litre and even slightly below. Petroleum sector industrial unions should be at the forefront of agitation for the appropriate subsidy-free pricing of petroleum products, which they produce, to reduce the burden on consumers and eventually on the cost of transportation and production of goods and services, especially food.

The federal and state governments should collaborate closely with petroleum sector organisations in the CNG subsector to accelerate the roll-out and conversion of CNG-powered vehicles. The Tinubu Administration’s plan to inaugurate its CNG programme on May 29, 2024, to mark its first year in office is laudable, as is its overall plan to purchase 5,500 buses and tricycles, 100 electric buses, and over 20,000 conversion kits; and it is championing the development of CNG refilling stations and electric charging stations. The recent launch of CNG-powered high-capacity metropolitan transport buses by the Lagos State Government is equally commendable.

Read also: Lagos civil servants now earn N70,000 as minimum wage – Sanwo-Olu

But emphasis in the short term should be on the CNG-kit conversion of high-capacity vehicles for urban and intercity transport services, including food transport vehicles. In this regard, an accelerated programme to convert 5000 to 10,000 high-capacity buses, trucks, and trailers with CNG kits for intercity passenger and food transportation should be inaugurated to coincide with the first-year anniversary of the Tinubu administration in May, with a project execution time frame of three months. This essentially means bringing forward the purchase of the 20,000 CNG conversion kits and working with other stakeholders to accelerate the installation of CNG filling stations all over the country. The possibility and feasibility of a three-month emergency round-the-clock (24/7) work schedule to achieve the target of CNG-kit conversion of 5000 to 10,000 commercial vehicles should be considered.

The other leg of the strategy to crash food prices is an increased supply of food in the short term through programmed food imports to take care of production shortfalls for key staple grains like rice, corn, and millet. It is interesting that the food items responsible for the spike in food prices in March 2024, according to NBS, do not include grains, but the prices of these key food staples are still out of reach.

Crashing food prices is certainly a key strategy for bringing down headline inflation, and it should be a bargaining chip for the government in the ongoing minimum wage negotiation.