BusinessDay
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Nigeria’s proposed minimum wage: A utopian goal in a destabilised entity

… Improve public service delivery not wage rise, analyst says

 

The issue of a national minimum wage for workers has been heavily debated among labour movements, trade unionists and policy makers in recent times. Presently, the National Minimum Wage (Amendment) Act, 2011 provides for a national minimum wage of N18,000 per month – an amount that current economic realities have tested and proved to be grossly inadequate.

 
Though there is deceleration in the rate of inflation, which would ordinarily have served to boost real wage, the peculiarity of Nigeria’s economic landscape prove a case that defiles such universally acceptable theoretical economic aphorism.
The clamour by organised labour for a new minimum wage got a boost in November, 2017 with the setting up of the Tripartite National Minimum Wage Committee by President Buhari comprising the government, labour and the private sector and was to be headed by erstwhile Head of Service of the Federation cum ex-Minister of Housing, Amal Pepple.

 
The Committee’s mandate is hinged on providing a platform for receipt of ideas from relevant stakeholders that will serve as a vital input in the process of preparing an executive bill to amend the existing minimum wage structure.
It is not uncommon in Nigeria that policy makers and employers are quick to dispel any attempt to increase the wage rate. Interestingly, given that the general election is just around the corner, the political gladiators are beginning to subscribe to labour’s struggle perhaps to score cheap political point and advance their popularity. The question of what has stalled the process of reviewing the minimum wage since 2015, which was the original date set for its revision is one that calls for us to ponder upon.

 

 

However, one issue that remains is what many believe is the dysfunctional political arrangement of the country, which is anchored conspicuously on the fact that constituent sub-national governments are treated as though they possess equal financial muscles to offset huge recurrent expenses like the payment of workers’ salary.
One obvious consequence of this debacle is the upsurge in backlogs of unpaid salaries (including the staggering debt profiles) of some state governments for the simple reason that they do not have the financial wherewithal to execute what they will rather describe as a “seemingly lofty but over-ambitious idea” at this point in time.

 
Some states’ internal revenue generation capacity is so deficient and weak that they depend largely on allocation flows from Abuja to stay afloat: a sort of “banana republic” arrangement. This quagmire has led to a call for restructuring, fiscal federalism or any other befitting nomenclature that could succinctly capture the clamour for a change in the existing status quo of Nigeria’s governance structure.
In South Africa, Africa’s second largest and most industrialised economy, minimum wage is pegged at R20 monthly (i.e. $1.43 per hour) according to Reuters.

 
More so, the case of India, one of the world’s fastest growing economy, is quite interesting. The International Labour Organization (ILO) stated that there exist over 1,500 minimum wage rates termed “schedules” set at the state level for selected industries and occupations. The central government sets a non-binding indicative national floor level (160 rupees per day).
In Nigeria, despite having the process that unambiguously articulate periodic minimum wage review, it’s unfortunate that when the day of reckoning beckons the government tactically or recalcitrantly relapses to fabricating fables; this is a sort of subtle non-commitment gesture to honouring previous agreement reached with organized labour.

 
As an instrument of last resort, Nigeria Labour Congress (NLC) will subsequently embark on countless number of strikes to press home their demand for increased minimum wage, better welfare conditions and a conducive work environment for workers.
The economy-wide implications of strikes are colossal: shut-down in businesses, reduction in production, loss in investors’ confidence, price hike due to panic buying and so on.
This difficulty in getting government attention to reviewing the minimum wage in the light of prevailing economic realities is buttressed by a somewhat underground scheme to perpetually short-change the vast Nigerian workers.

 
Proposed minimum wage is unsustainable
The NLC initially proposed a N56,000 minimum wage but later raised it to N66,500 which is the average of the wages arrived at under four categories: minimum wage for some African countries; analysis based on the minimum cost of providing basic needs; a living wage approach and analysis based on rising cost of living.
The long term sustainability of the proposed N56,000 has been questioned on certain grounds
Dolapo Ashiru, Managing Director, Asset Management at Lagos-based Mega Capital Financial Services Limited aptly stated, “Our minimum wage is a joke but presently we cannot afford the proposed new minimum wage.”

 
On his part, Soji Apampa, Chief Executive Officer of The Convention on Business Integrity cautioned stakeholders on the need to learn from history noting that when there was the 1976 Udoji awards, prices skyrocketed in the marketplace.
Fundamentally, the dilemma of a wage-price spiral will rear its ugly head in the scheme of things following the implementation of a new minimum wage. The problem is compounded given the weak industrial base of the country.
This ultimately will birth a situation whereby the real wage either deteriorates faster or remain unchanged depending on the speed of a rise in the general price level.

 
“If you say the proposed minimum wage is N56,000, that means every workers’ wage has to be re-calibrated in proportion to the hike from N18,000 to N56,000 so that there is no disparity between workers in different level. This is what makes the proposed new minimum wage unsustainable”, Apampa said.
The incessant vulnerabilities of the economic terrain to volatilities in key macroeconomic magnitudes such as the spiralling food prices exacerbated by widespread poverty; and the unstructured social safety net to cushion the effect of a low wage especially among poor households are pertinent factors that underpinned the hardship faced by Nigerian workers.

 
However, the insolvency of states, which underpins their inability to pay is a critical stumbling block to achieving this lofty idea.
Using personnel cost figures from the annual reports of the CBN and based on the assumption that each of the employees received N18,000 minimum wage, BRIU estimated roughly, the total number of employees in the public service in each states.
Having obtained the population of public servants in each state, we multiplied the figure with the proposed minimum wage of N56,000 to arrive at the proposed personnel cost for public servants in the different states.
This was compared with the 2018 budgeted personnel costs of states to have a birds’ eye view of states’ capability to pay the proposed minimum wage when it comes on stream.

 
Given the fact that most state governments hide their budget from public domain for various reasons, we made do with states that publicized their budget.
Such states include Delta, Edo, Kaduna, Katsina, Kogi, Kwara, Lagos, Ondo and Plateau states.
Our analysis shows that none of the states can pay the proposed N56,000 minimum wage, not to talk of organized labour’s upward review of same to N66,500.
Lagos state, the nation’s nerve centre, recorded the lowest gap between the projected personnel cost and the budgeted personnel cost (N35billion) while Delta states had the highest difference to the tune of N194billion.
The possibility is high that some states that cloaked their budget from the public will have a big gulf between BRIU’s proposed personnel cost and budgeted cost.

 

Source: CBN, States Budgets, BRIU Analysis

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“The long term solution is not predicated on wage increase. Elevating welfare is not a function of wages alone. This is a time to look at all the components in workers’ packages and change to a better package to ensure that all other things needed in the package are present even if the cash component is low”, Apampa said.

 

 

“We need to produce and improve public services because if there is good health insurance policy, scholarships and mass transit, cost of health, education and transportation will reduce and there would not be any need to clamour for wage increase”.
Execution of welfare laws that could have acted as shock absorbers is still very poor. Save for the Pension Reform Act (2004), implementation rate for such laws as the National Health Insurance Act, Universal Basic Education Act, and the National Housing Act etc. are at low ebb with minimal impact on workers’ welfare.
Unquestionably, the situation of workers in Nigeria is pathetic. It therefore becomes a matter of utmost importance for the relevant stakeholders: the government, labour leaders and activists, trade unions and even international labour movements to form a united front towards prioritizing the needs of workers across board.

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