Minimum wage: Anxiety mounts over States’ ability to pay N30,000

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Since the signing into law of the N30,000 minimum wage on April 18, 2019, by President Muhammadu Buhari, many governors have been boasting on their ability to pay it.

This same scenario played out in 2011 when President Goodluck Jonathan signed into law the N18,000 minimum wage.

But this time round, while some governors have promised to pay the N18,000 others have pledged to pay more than N18,000. The governors’ varying commitment to the issue stems from the fact that owing to the fluctuation in oil price and the unnecessary recurrent expenditure which drove them into deep indebtedness, most of them have failed to pay their workers despite the bailout funds granted them by the Federal Government.

However, the states that have promised to pay the N30,000 wage include Plateau, Edo, Ekiti, Rivers, Jigawa and Kebbi.

But considering their monthly allocation from the Federation Accounts Allocation and Fiscal Commission (FAAC) and their internally-generated revenue (IGR) the states likely to implement the wage are Lagos, Akwa Ibom, Cross River, Kano, Delta, Bayelsa, Ondo and Ogun.

According to Debt Management Office (DMO), Nigeria’s domestic debt (debt incurred by governors) as at December last year was $4,162.35 or N16, 627,841.75. This debt which is likely to have escalated by now, is being serviced every month by some of the poor states who accumulated them over the years for wanton needs.

Regrettably, these same states are now faced with the challenge of paying N30,000 minimum wage. It is against this backdrop that the Zamfara State Governor and the chairman of Nigerian Governors’ Forum, Abdulaziz Yari, warned the newly-elected and returning governors that Nigeria may head for another economic recession due to the decline in oil price and debt overhand.

“We are expecting the possibility of another cycle of recession by mid-2020 and which may last up to third quarter of 2021,” Yari said.

According to Buhari’s aide on National Assembly Matters (Senate), Ita Enang, the signing of the bill into law now “makes it compulsory for all employers of labour in Nigeria to pay their workers the sum of N30,000.”

The presidential aide, however, said employers with less than 25 workers are excluded from paying the new wage.

While welcoming the new wage, stakeholders have not under estimated the backlash which the new wage is likely to cause the economy.

According to a development economist and a consultant to several countries, Mr Odilim Enwegbara, apart from developing the Small and Medium Enterprises (SMEs), the government should reduce its unnecessary recurrent expenditure and drastically downsize and right-size its workforce with forensic personnel auditing.

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“There are preliminary issues that have not been fully addressed before the minimum wage was signed into law.

Because these have not been fully considered no one has taken note of the fact that actually right now state and federal governments are entrapped in huge and difficult-to-service recurrent-driven expensive debts.

“It is as a result of their monthly debt service obligations that most states are unable to meet their monthly personnel wages, including pensioners’ monthly payments.

As a result, most states are owing workers and pensioners for several months.

What makes this so dangerous is the fact that while state and federal recurrent spending continues to grow at such a geometric progression, their revenue receipts seem either stagnant or at best growing at an arithmetic progression.

A government that is sincere shouldn’t need to be told that it should quickly focus all its economic policy efforts to developing the country because it is the SME economy that holds lasting solution to the current economic problems. If this has been properly and consistently done, an army of thriving local small business owners would have helped put less import pressure on our overall economy.

“Government should reduce its unnecessary recurrent expenditure as well as quickly address its consumption debt profile. That is the first step. Second step is to drastically downsize and rightsize its workforce starting with forensic personnel auditing.

This has become inevitable because unless it frees most of the expenditures trapped in its recurrent, there may not be enough money for capital investment and without massive capital investment government’s revenue receipts will hardly grow.

Third step will require doubling government revenue receipts through tax particularly Value Added Tax (VAT). Besides, efforts to increase VAT to at least 10 per cent with as high as 20 per cent on luxury consumptions, tax collection and remittance infrastructure in Nigeria remains outmoded to the extent that as high as 70 per cent of VAT money gets diverted by collecting and remitting firms in connivance with Federal Inland Revenue Service (FIRS) officiating.

The government will require that the items on the exclusive list such as solid mineral mining and billings for interstate traffic offences along with the introduction of auto number plate be renewed. These will definitely increase states’ IGRs.

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While minimum wage can be a living wage in some states it can be far from a living wage in others. This can be resolved with state and local governments retaining a large portion of IGR so as to encourage them to build up their IGRs.

It is only when states are able to increase their IGR receipts without having to depend on the Federal Government that they can sustainably pay the current minimum wage without having to default over a period of time.

Of course, this can only happen when we are bold enough to overhaul the country’s presently disjointed fiscal and monetary policies and strategically make them pro-growth, pro-investment and pro-job.

This will also require an activist, a pro-Nigeria first, and a pro-SME president leading the way and readily imposing high import tariff all the way on all those imported goods that can be easily made locally with the right pro-manufacturing policies carefully set in place.

Already, fiscal federalism, which could have been a product of restructuring, has been refused by President Buhari who swore not to allow that to happen.

This is what contradicts the signing of the N30,000 minimum wage into law when we all know that most states cannot sustainably pay the new minimum wage without first diversifying their revenue streams and cannot diversify their revenue streams without being allowed to retain as high as 70 per cent of their revenue receipts.

Imports such as petroleum products, food, medical treatments and foreign education which are currently putting immense pressure on our external reserve accounts shouldn’t be allowed to continue.

I am sure that Dangote Refinery, once it is working, will beside reducing the import pressure from petroleum products, also reduce the current high pump prices of petroleum products. This is because it is these products which are the major causes of the country’s imported inflation.

“Finally, we have no option but to fully privatise the downstream. This should start with the refineries to consortiums set up by Nigerians especially if government intends to have private sector-led economy. In other words, the country’s downstream petroleum subsector privatisation should have been wholly localised.

A professor of Capital Market and Dean of Banking and Finance Department, Nasarawa State University, Keffi, Nasarawa State, Uche Uwaleke, said that the new minimum wage would not result in demand-pull inflation or complicate monetary policy. Instead, he said, a higher wage floor in Nigeria is bound to have a salutary effect on stock prices in the country.

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He said with a rise in income, most households will have more money to spend. This growth in consumption could increase corporate sales and corporate earnings.

“It does appear to be the missing piece of the post-recession growth trajectory. The growth in GDP is still weak due, in part, to weak aggregate demand and therefore one way to stimulate the economy should be by implementing the new minimum wage,” he stated.

He said given the continuous decline in economic activities evidenced by sliding GDP growth rates and relatively low inflation rate, the economy can absorb the new minimum wage without any significant knock-on effect on price levels and employment. The professor pointed out that the fact that real wages have dropped drastically in Nigeria since the current N18,000 minimum wage came into force in 2011 is not in contention. As evidence, the average inflation rate in Nigeria was 16.5 per cent in 2017 compared to 10.8 per cent in 2011 according to the National Bureau of Statistics. He said the naira/dollar exchange rate which feeds into the rate of inflation, thereby impacting purchasing power, has moved from about N162 to N360 over the same period.

“Certainly, the current minimum wage has not kept pace with trends in the cost of living and the erosion in purchasing power has created a situation where a lot of low-paid workers live in abject poverty,” he added. Addressing one major criticism that minimum wage hike would result in demand-pull inflation and complicate monetary policy, the professor said: “When the National Assembly amended the National Minimum Wage Act in February 2011, increasing the minimum wage from N7,500 to N18,000, average inflation rate actually dropped from 13.7 per cent in 2010 to 10.8 per cent in 2011 and further down to 9 per cent in 2016.

“It was not until 2016 that inflation spiked to 15.7 per cent on the back of an increase in both the pump price of fuel and electricity tariff. What is clear from quarterly reports of the National Bureau of Statistics is that inflation in Nigeria is more from cost-push than demand-pull factors.”he said

But the Chief Press Secretary of National Salaries and Wages Commission, Mr Emma Njoku said that although the new minimum wage is likely to cause cost-push inflation, the salary should, however, be worked out by the relevant authorities.

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