For an economy buffeted by considerable turbulence, the outcome of the ongoing review of public service pay may have far-reaching consequences. An upward review of salaries across the board has already been promised by President Muhammadu Buhari and the 30-member committee he empanelled will only work out the details. There is, however, a need to consider the vital issues of minimum wage versus salary review; and the ability of the public sector and the economy to absorb pay hikes at this time.
Buhari set up a tripartite National Minimum Wage Review Committee to negotiate a “new minimum wage for the country.” Chaired by a former Head of Service, Ama Pepple, the committee membership includes the Minister of Labour and Employment, Chris Ngige, as well as the Ministers of Finance, Budget and National Planning, some state governors, representatives of labour and the organised private sector.
This is the culmination of sustained agitation by labour unions which are demanding N56,000 per month for the least paid Nigerian worker. Stakeholders are also unanimous on the need for a general wage increase, especially as the current N18,000 monthly minimum wage is too miserly. The President agrees, recalling that the government conceded to labour when pump head prices of petroleum products were raised in 2015 on the need for a “realistic wage”; so does the OPS as expressed by the Nigerian Employers Consultative Association which, however, favours deferring any increase until the economy is up and running again.
In the circumstances, clarity and clear-headedness are essential. Today’s N18,000 per month minimum wage cannot sustain an individual, let alone a family. Inflation was 16.01 per cent in August, according to the National Bureau of Statistics; N148 exchanged for US$1 in 2009, but was N305 officially, and over N360 at the parallel market to $1 last week. When it called for a wage freeze earlier in March this year, NECA cited an inflation rate of 18.6 per cent then.
But the government, Labour and employers should ponder the implications of what we are about to do. First, we need to separate the issue of minimum wage from a general wage review. While fixing a minimum wage may inevitably trigger increases in the higher pay scales, Nigeria needs to follow global best practices and not lump the two together to avoid the inflation that accompanies each national salary review. The review embedded in the Jerome Udoji-led Public Service Review Commission report of 1973/74 raised the minimum wage from N312 per annum to N720 pa and gifted public servants with arrears when it was implemented. But the euphoria was short-lived as it also triggered high inflation that wiped out initial gains in spending power. Subsequent general salary hikes have followed the same pattern.
Minimum wage is the least remuneration that employers can legally pay their workers. Advocates say it raises standards of living, reduces poverty and inequality while boosting morale. But, to critics, it adds to the cost of production, thereby adding to the cost of goods and services, fuelling inflation and eventually deepening, rather than alleviating, poverty. Most countries legislate a national minimum wage; in federal systems, states and local authorities also do and the highest rate prevails.
In Nigeria, fixing the minimum wage, a function on the Exclusive Legislative List in the constitution, has morphed with a general wage increase, unlike in other countries, especially federal political systems. Can employers meet a new wage bill at this time? Even the Federal Government that takes 52.68 per cent of revenue from the Consolidated Revenue Fund of the Federation borrows heavily to meet its monthly wage bill. Labour unions say 23 states owe workers’ salaries and pensions. Many states confess that their total monthly income – federal allocations and internally generated – cannot meet their monthly wage bills. Benue has not been able to pay the previous minimum wage, while some others owe up to 12 months salary back log.
Any new wage increase now is also bad news for business operators. In the 12 months to August 2016, 272 of its member-companies shut down and in the nine years to 2009, according to the Manufacturers Association of Nigeria. About 3.7 million workers lost their jobs in 2016, said the NBS. With the prevailing foreign exchange crisis, low purchasing power and public sector workers and pensioners unpaid, high costs and a deluge of foreign consumer goods, NECA wants any wage increase deferred until the economy that has just emerged from five consecutive quarters of negative growth returns to healthy growth.
From over N700 billion they shared in 2013, the federal, states and local governments shared N588 billion in October as a result of improved oil prices. The country is financially vulnerable as it still relies on oil revenues for over 70 per cent of revenues and 80 per cent of external earnings.
Nigeria should learn from its past, from the best practices worldwide and from current realities. The economy cannot support a general wage increase now; the best course of action is to raise the minimum, introduce fiscal and monetary policies that will force down inflation, borrowing rates, stimulate mass job creation, attract investment and expand agriculture, mining, manufacturing and services. Labour should be persuaded to accept a wage freeze for all except the least paid, for at least two years.
Legislation should now turn to arriving at a realistic minimum wage. In a federal set-up, it is unreasonable to mandate the same pay for all the 36 states; some are rich, others poor. Henceforth, states should set their own pay structure. In the US, federal, states and LGs set minimum wages and employers are obliged to pay the highest rates; in India, minimum wages are set by professions, sectors, trades and craft guilds. In the United Kingdom, minimum wage is inextricably linked to national wealth and every major party, labour union and business group adopts positions that become the subject of lengthy and complex negotiations.
Our minimum wage is too low and needs review, but care should be taken not to stampede the public and private sector into a new, unsustainable general wage structure that will prove counter-productive.
