New wage bill spells fiscal peril – Punch

As the country awaits the final word on the renegotiated new national minimum wage and public service pay rise, stakeholders should ponder the likely full implications. After the usual sparring between the organised labour and the government, a tripartite committee had recommended N30,000 monthly as the minimum wage, down from labour’s N64,000 demand and higher than the N24,000 offered by the government. Whatever the final outcome, the precarious state of public finances, wobbly economy, large bureaucracy and dreadfully poor leadership at all levels, guarantee greater economic turbulence ahead.

The reprieve from a shutdown of the economy when the unions called off a nationwide strike that was scheduled to commence on November 6, may prove short-lived, a mere precursor to graver economic and social upheaval. It allowed for further negotiations and time for a committee that had representatives of government, labour and employers, to harmonise positions and present its recommendations. Its N30,000 monthly recommended wage for the least paid worker has found favour with the unions, but disconcerted other stakeholders.

For the private sector that faces a harsh operating environment, this means greater costs, more scaling down of operations and job losses. For the Federal Government, this is higher than the N24,000 minimum it was willing to pay. For the states and local governments, however, disaster looms. The 36 state governors had declared that they could go no higher than N22,500. Some have now said emphatically that they simply cannot afford any increase in their wage bills. With labour’s increasingly combative posture, backed by seething discontent among the populace, the government has no escape route from a new wage package. The current N18,000 minimum wage is grossly inadequate.

The implications of the unfolding drama are dire. If, as in more judicious jurisdictions, legislating a national minimum wage were limited to the least paid, the financial fallout would have been easier for public and private sector employers to bear at a time of low revenues and business contraction.  In Nigeria, however, it is always tied to a general wage increase across the board, placing near-unbearable burden on employers.

The immediate impact of any general wage increase in Nigeria is a spike in inflation. This happened after wage reviews in 1970/71 (Adebo Award), 1973 (Udoji Award) and a 45 per cent increase implemented in 1991. Inflation averaged 15.7 per cent in 2016, 16.5 per cent in 2017 and was 11.23 per cent by August this year. Just as arrears and higher pay wiped out the hoped-for higher purchasing power of workers after the Udoji award in the 1970s, the combination of speculation and a weakened national currency for an import-dependent economy could force a repeat. The Organised Private Sector is under no illusion that inevitable added costs will translate to more job losses and cutbacks at a time the economy requires increased production and more jobs.

But the major crisis point will be the public sector. The Federal Government has borrowed N2 trillion this year to fund  capital and recurrent needs: it has been borrowing to pay salaries since 2014 and the over N2 trillion for personnel costs this year will inevitably rise, just as the N2.01 trillion debt service charge will also likely rise.

For the states, the omens are worse: 17 states still owed salaries and pensions as of October despite a N1.8 trillion bailout from the Federal Government. By July 2016, Oyo owed N29 billion in salary arrears that a N14.1 billion federal aid could not solve. Pensioners have sued the state government over N42.3 billion in arrears.  Osun State civil servants were owed 17 months’ salary by September this year. Judicial officers in Imo State said in February that they had not been paid for 14 months, while Kano says it spends N9.2 billion monthly on salaries. Many states confess that what they receive as revenue from the Federation Account is less than their wage bill. One report said at least, 53 per cent of the total N17.5 trillion budgeted by the federal and 35 states will be spent on salaries, meaning that 1.2 million estimated combined number of public servants at both levels absorb the bulk of public resources.

The government missed yet another opportunity to tie higher pay to fundamental reforms of the over-staffed, indolent and corrupt service. Now, Nigerians must brace for the fallout. Singapore’s near-miraculous transition from backwater, underdeveloped nation to an economic Tiger was facilitated by radical reform of its civil service that delivered infrastructure, first rate education model and robust public housing system. A 2013 study for Italy’s Ministry of Agriculture, Food and Forestry identified “high level of meritocracy,” strong focus on strategic planning, lack of corruption, innovation and “ability to ensure a high level of technical-scientific and humanistic knowledge” for Singapore’s spectacular success.

The three tiers should run governance on acceptable, rational, scientific basis; they should immediately undertake an audit of their workforces, define goals and needs and drastically cut down. The reforms should start with a radical reduction in the battalions of political appointees and aides and in the cost of running governance. Workers will never be persuaded by pleas of limited funds as long as the President, ministers, governors, commissioners, assistants and local government chairmen continue to live in opulence at public expense. Our lawmakers are overpaid for doing too little while corruption thrives everywhere, draining scarce resources.

The number of ministries and agencies should be cut down by over half: a panel in 2012 found duplication, waste and irrelevance among the then 542 federal MDAs, with about 50 lacking enabling laws. Many more have since been created by the reckless National Assembly with no thought for funding sources.

Ultimately, Nigeria must re-arrange this unwieldy system that reduces states to beggars and denies them control over resources. The impending new wage bill is another painful reminder that the centralised system is unproductive, unviable and may implode soon. Each of the four regions in the First Republic had efficient bureaucracies that delivered rapid development. Each state and LG must downsize and build a lean, result-driven public service.

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