Implications of new minimum wage

WITH the unwritten promise of a review every three years, the Federal Government and organised labour have settled for a new national minimum wage of N70,000 monthly. This is an increase of 133 per cent over the former N30,000. It has been a long-drawn saga. Ultimately, only a stable economy will make wages sustainable and meaningful.

By law, there should be a wage review every five years. The last one was in 2019 under President Muhammadu Buhari. That review hiked it to N30,000 from the N18,000 set under President Goodluck Jonathan. These reviews generated rancour and default.

In Nigeria, the wages are disdainful. With the naira depreciation, most workers are living in poverty. Compared to South Africa, Egypt, Morocco, Algeria, and Angola, Nigeria has the lowest, even at N70,000 monthly or about $44.

Shortly after President Bola Tinubu cancelled petrol subsidies in May 2023 and prompted the CBN to float the naira, the urgency of another review became apparent. Initially, labour proposed N615,000 monthly and later settled at N250,000. The tripartite committee of the government (federal and state), labour and the organised private sector pushed N62,000 after lengthy negotiations and a two-day labour strike.

For all the parties concerned, this is a Pyrrhic victory. Though some state governments indicated they would pay the new wage, many still sit on the fence. This is a bad signal. Many states are not financially viable with indications that some could go bankrupt when they start paying the new wage. States owe backlogs after every review. Despite the windfall from the removal of subsidies, the states need to cut their coat according to their cloth to be able to pay and still fund capex.

For labour, the increment brings temporal relief. At 34.19 per cent, inflation is at a 30-year peak. Food inflation is worse at 40.87 per cent. This pulverises the increment.

The OPS is uncomfortable with the N70,000 imposed on it by the centre. It has a point. Manufacturers operate in a difficult environment; many, including multinationals, are shutting down. Productivity is too low in Nigeria to sustain a 133 per cent jump.

The centre, which fronted the hike, does not have the resources to fund it. Consequently, Tinubu forwarded a N6.2 trillion supplementary budget to the Senate of which N3 trillion is to cover recurrent and N3.2 trillion for capex. This takes the 2024 budget to N34.9 trillion from N28.7 trillion. In 2023, the Federal Government serviced debt with N7.8 trillion, a 121 per cent increase from the N3.52 trillion in 2022.

So, the Federal Government is living beyond its means. This is bad economics. It spells more trouble. The CBN said the Federal Government serviced debt with N1.31 trillion or 74 per cent of its retained revenue of N1.76 trillion in the first quarter of 2024.

Therefore, the Tinubu government should stop living big; it should reduce the cost of governance, especially the urge to buy new aircraft and other luxuries. It should stop the dodgy payments to lawmakers in the guise of constituency projects and implement the Steve Oronsaye report on MDAs.

Tinubu’s team should focus on domestic refining of crude oil. The President should place a moratorium on borrowings and devise pragmatism to bring down inflation. He should shore up the value of the naira. To do this, the government should stop paying lip service to security. Food inflation is high primarily because of insecurity.

Tinubu should implement his tax review policy to boost the private sector. To fund the N3 trillion deficit, Tinubu asked the Senate to levy a new 50 per cent tax on banks’ forex profits. This is contradictory for a President who wants to reduce tax heads.

The chaos of the consequential adjustments could be addressed through tax reliefs for the higher cadre of workers.