• Sunday, February 25, 2024
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BusinessDay

Inflation pushes companies’ salary costs to 13-year high

Navigating Nigeria’s economic stability amid inflation: Striking the balance!

Salaries and wages in Africa’s biggest economy rose to the highest in 13 years for the first six months of 2023, on the back of rising inflationary pressures.

According to the latest Nigerian Gross Domestic Product Report (Expenditure and Income Approach) report by the National Bureau of Statistics (NBS), compensation of employees rose by 17.3 percent to N13.21 trillion in the first six months from N11.26 in the same period of 2022.

Further analysis shows that the percentage increase (17.3) is higher when compared to 5.14 percent recorded last year.

“The increase in salaries shows companies’ investments for employees in light of some of the macroeconomic challenges. Inflation has gone up and companies, especially in the banking sector have revised their salaries,” Omobola Adu, an economist at BancTrust & Co, said.

Israel Odubola, a Lagos-based research economist, said that some banks took it upon themselves to increase personnel costs so that their human resources would not be affected by the cost-of-living crisis.

The country’s salary growth also boosted household consumption as it expanded for the first time in 15 months in the second quarter of this year.

Data from NBS showed that Africa’s most populous nation recorded a positive real growth rate of household consumption expenditure of 3.30 percent from a negative growth of 24.95 percent in the previous quarter.

“The growth rate of Q1 of 2023 was lower compared to the growth rate of the corresponding quarter of 2022 which was 8.66 percent and Q2 of 2023 was higher than Q2 of 2022 which recorded -5.21 percent,” the report said.

It said the observed trend since 2020 indicates that real household consumption expenditure declined in Q1 and Q2 of 2020, accounting for negative growth rates informed by the pandemic.

“However, positive growth rates were recorded since Q3 of 2020 as recovery from the pandemic was witnessed, while growth became negative from Q2 of 2022 to Q1 of 2023 occasioned by rising prices, the cash crunch witnessed earlier this year as well as the current challenging economic conditions,” it added.

BusinessDay reported in September that banks’ staff salaries rose by 26 percent in one year. According to eight banks’ financial statements, their personnel expenses grew to N277.2 billion in the first half of 2023 from N219.8 billion in the same period last year.

A recent report by SBM Intelligence, an Africa-focused geopolitical research and strategic communications consulting firm, showed that five in 10 Nigerians experienced an increase in their income in the last four years.

It said 50 percent of Nigerians who had an increased income is more than double the 18.6 percent who reported an income decline.

“Respondents who reported increased income attributed it to promotions, changing jobs and increased demand for their goods. In contrast, job losses, salary cuts and reduced sales were cited as reasons for experiencing a reduced income,” it said.

It added that the Nigerian consumer was currently facing significant challenges because of a combination of high inflation, sluggish economic growth and high unemployment rates.

The Federal Government reforms, such as the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, caused a surge in the cost of living of cash-strapped consumers.

According to the NBS, the country’s inflation rate, a measure of the general price level, rose to an 18-year high of 27.33 percent in October from 26.72 percent in the previous month.

The World Bank said in June that inflation pushed an estimated four million more Nigerians into poverty in the first five months of this year.

The removal of subsidy on petrol tripled the pump price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares. This situation affected those who rely on public transportation, particularly workers in the private sector.

With higher transportation fares, many employees are forced to allocate a substantial portion of their salaries to cover commuting expenses, leaving little for other essential needs like food and rent.

“Removing subsidies has led to an increase in the prices of goods and services such as fuel and food. This has made it difficult for people to afford necessities such as food and transportation,” analysts at SBM said.

SBM also revealed that Nigerians reported spending 97 percent of their monthly income on food as the monthly average spending on food was N105,318 compared to the monthly average income of N108,097.

Last week, the Federal Government said a new minimum wage regime would come into effect on April 1, 2024. Idris Mohammed, minister of information and national orientation, said the current N30,000 minimum wage would expire at the end of March 2024.

“Certainly, there is a new wage regime that will come in on April 1, 2024. That is why these palliatives were targeted so they would cushion economic hardship before then. In our negotiation with labour, we said that the wage issue was not something one could just fix. A committee that will also involve labour itself will work on it,” he said.

Tinubu in October approved a N35,000 provisional wage award for all treasury-paid federal workers for six months, following further consultations with the Federal Government delegation that met with the leadership of the Nigeria Labour Congress and Trade Union Congress.

Then the next month, the government said it had commenced payment of the N35,000 wage award to the workers.