A two-week ultimatum by labour unions to the Federal Government to announce a new minimum wage refocused attention on workers’ pay and the precarious financial position of public and private sector employers. The threat of industrial strike if the government failed to bend sent Presidency officials scrambling to figure out how to fund the inevitable wage increases. At this time, however, increases in public and private sector wage bills could have far-reaching repercussions on the fragile economy.
Boxed in by the realities of the inadequacy of the current national minimum wage of N18,000 per month, the parlous finances of the three tiers of government, and an election season, the Federal Government will be tempted to fulfil its promise to raise public workers’ pay and set a new minimum wage. Labour, on its part, is insisting on a wage package, citing inflation that has rendered the current pay piddling.
Designed everywhere else to ensure a fair wage for the least paid workers, “minimum wage” agitation and implementation in Nigeria are accompanied by a general wage increase across the board for public sector workers. This inevitably places a burden on private sector employers to follow suit. In an economy where recurrent spending, including personnel costs, averages 70 per cent of the national budget, increases in the wage bill inevitably reduce available funding for health, education, sanitation and roads, as public sector workers, who make up less than five per cent of the population, gulp most public funds. Of the total N8.61 trillion budget for 2018, for instance, Personnel costs get N2.11 trillion, Pensions and Gratuities N190.03 billion, and Overheads N246.06 billion.
Moreover, the economy is shaky, growing by only 1.5 per cent in Q2 2018, down from 1.95 per cent in Q1, having just emerged from recession. The National Bureau of Statistics said the economy lost 7.9 million jobs between January 2016 and September 2017, four million in the first nine months of 2017 alone, while the Manufacturers Association of Nigeria reported that 226 companies either closed or downsized in 2015 and 2016. But in India, where states compete for investments and markets, salaries have been rising, along with growth in manufacturing, according to Mercer, a global human resources consultancy.
To be sure, N18,000 cannot adequately feed, clothe and provide shelter for an adult in today’s Nigeria and should be adjusted upwards. At about $705.88 per annum, the minimum wage pales when compared with Brazil’s $3,888, China’s $1,775, Russia’s $2,296 and South Africa’s $3,324.
The dilemma here is that, given the sheer size of the public sector; the pattern of public expenditure that is wasteful, that misplaces priorities and driven by corruption, a general wage increase at this time is simply not sustainable. At the last count, 26 states, their local government areas inclusive, owed workers salaries and pensions. The Federal Government too has been borrowing to pay its bloated workforce. The then Finance Minister, Ngozi Okonjo-Iweala, said in May 2015 that it had already borrowed N473 billion “to pay salaries and fund the …budget.” About N600 billion is borrowed annually for salaries and pensions, the government admitted in 2016. Most states also borrow to pay salaries, many pay pensions only occasionally, an unsustainable template. Saddling them with a higher wage bill when they cannot meet the current one is counter-productive.
Yet, it is not because we are poor, but due to wrong choices and terrible financial management practices. We must change to avoid social and economic ruin. First, the public sector is excessively large, unproductive and mired in corruption, patronage and nepotism. The federal, state and local governments should muster the courage to drastically reduce their bureaucracies and reform them for service delivery.
They should undertake radical reforms of the public expenditure template: elected officials and appointees should no longer live like potentates at public expense. Spending should be on social services and infrastructure, while leaving commercial ventures to the private capital. Reforms should include an overhaul of the taxation system to make taxes the primary source of public revenues. Nigeria has no revenue joker save its unreasonable reliance on rebounding oil prices, a tenuous anchor in a volatile global market. Pay rise funding should be linked to specific sources. In the United Kingdom, the National Minimum Wage Act 1998 tied pay hikes to revenue sources and inflation rate.
Standard practice in federal systems sees minimum wage legislation by the different tiers, though none should be lower than the federal rate. For instance, each Brazilian state legislates its own minimum wage, but it is never lower than the federal minimum. In the United States where national, state and city/local governments set their own rates, though federal minimum wage has not been reviewed since 2009, the Economic Policy Institute, a think tank, says 27 states have raised theirs since 2014; 29 states have higher minimum than the federal rate, while 42 localities have higher rates than their state governments. Henceforth, Nigeria should do the civilised thing – separate minimum wage from general salary review and allow states to set their own pay. Lagos, the richest, need not have the same rates as poorer Zamfara, Ebonyi or Taraba states.
Government should resist the temptation to ink an agreement it can neither afford nor intends to honour.