The federal government has increased Nigerian workers’ minimum wage by approximately 133.3 percent to N70,000 ($44) in a renewed effort to mitigate the cost-of-living crisis and end months of haggling with organised labour who had insisted on a N250,000 wage rise.
This upward review, which still remains lowest among top 10 economies in Africa, will end the over five years N30,000 ($20) received by the least paid employee in the continent’s fourth largest economy.
The wage bill which has now been passed by Nigerian lawmakers to be reviewed every three years may not be able to calm the storm as evolution of Nigeria’s minimum wage showed that at every review, inflation went up, hammering the spending power and reducing the value of the wage.
According to a 2023 report by Afrinvest (West Africa) Limited, a wealth advisory firm, Nigeria’s spiralling inflation rate eroded the N30, 000 monthly minimum wage by more than 40 percent since 2019.
The report titled ‘The Cost of Nigeria’s Spiralling Inflation Rate on the Average Household’, showed that since the national minimum wage was raised to N30,000 from N18,000 in 2019, the headline inflation rate index has risen by about 68.3 percentage points (ppts) from 2019 year-end to 517.39 points in February 2023.
“As a result, when adjusting the value of the minimum wage rate for inflation over this period, our estimate suggests that the purchasing power of the average household has been eroded by 40.6 percent, leaving the consumers worse-off in real terms compared to pre-2019,” it said.
Inflation rate began to spiral in August 2019, coinciding with the period of wage increases (from an average of 11.4 percent to 18.8 percent in 2021) after land borders were shut to food importation amid the structural plague on domestic capacity.
Beyond galloping inflation which now stood at 34.19 percent in June, 2024, concerns as to how states and private organisations will be able to afford the now set minimum wage cast a shadow on the feasibility and sustainability of the wage hike.
Afolabi Olowookere, managing director and chief economist of Analysts Data Services & Resource (ADSR) said the federal government is capable of paying the N70,000 minimum wage but some states may find the payment challenging.
“States with relatively high ability to pay are those currently having: low personnel expenses to total expenditure ratio; low personnel expenses to revenue ratio, especially, IGR (internally generated revenue); low debt profile, and relatively high elasticity of personnel costs contribution to future revenue and expenditure,” he said.
Olowookere said private organisations may or may not be able to pay depending on level of informality, business type, cost structure, profit margin, industry standard, competition and ability to substitute for labour, especially technology.
Many analysts said the new minimum wage may hamper the financial strength of small and medium private enterprises, adding that it may result in “massive retrenchment”.
Samuel Sule, the chief executive officer of Renaissance Capital Africa said the reality of the new minimum wage is that it is required for workers to maintain a basic standard of living, particularly given food and non-food inflationary pressures such as transport.
“Private entities will however struggle given this potential increase in their costs alongside others. We expect the impact to be more material on non-skilled labour and here expect some entities will retrench or struggle to adhere,” Sule said.
When the wage was reviewed in 2019, Africa’s most populous nation’s unemployment rate was 17.6 percent. But the unemployment rate hit a record high of 33.3 percent at the end of 2020, indicating that many people had become jobless.
BusinessDay analysis of poverty trends after setting a new minimum wage revealed that more Nigerians became poorer as the value of their incomes were eroded by inflation.
Data from the National Bureau of Statistics shows that in 2019, when the minimum wage was increased from N18,000 to N30,000, 40.1 percent of Nigeria’s population was classified as poor.
In other words, on average, 4 out of 10 Nigerians had real per capita expenditures below N137,430 per year. By 2023, despite a 66 percent wage increase for Nigeria’s over 75 million labour force, the poverty rate had risen, with 133 million people becoming multidimensionally poor.
Additionally, when the minimum wage increased from N5,500 ($53.86) in 2000 to N18,000 ($98 at the exchange rate of 306.08/$1) in 2019, about 112 million Nigerians (67.1 percent of the country’s total population of 167 million) were living below the poverty level.
By 2024, the minimum wage still currently stands at N30,000 at an average of $20. This indicates that the average Nigerian has been 80 percent poorer in nine years, even as minimum wages increased—a sobering reality.
This is because out of the 76 million workers in Nigeria, only 5.3 million (6.9%) are estimated to work in the formal sector and collecting wages.
“This is the group that will directly benefit from the new minimum wage,” ADSR said in its report.
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