The Labour Unions and the Federal Government in Nigeria (FGN) are engaged in a passionate debate and negotiations as regards an increase in the minimum wage in Nigeria
I doubt you can find anyone who will argue that Nigerian workers do not deserve a wage hike to keep pace with the double-digit inflation currently at 33.69% for April. The problem is how to pay for this wage hike. Keep in mind that if the minimum wage goes up, pension obligations and other allowances also go up
The FGN is proposing to pay N54,000 a month as minimum wage, an almost 80% jump in the wage
Let’s do some numbers
First, who is poor in Nigeria?
You are poor if you earn less than N138,000 a year in Nigeria. Similarly, if you live in Nigeria with less than N87.800 available for food, you are also considered to be living below the poverty line. However, this N138,000 was in 2019 when the average exchange rate was $1:N361
As currently legislated, Nigeria’s minimum wage is N360,000 per annum. The current exchange rate from the Central Bank of Nigeria as of May 22nd is $1: N1468.18
So proportionally, if you earn below N535,180 a year in 2024, you live below the poverty line. This means the minimum wage in Nigeria equates to an amount not above the poverty line. The value is pegged to the US.
The most recent numbers for the Nigerian Federal wages are from the Federal Budget Office as of Sept 2023. The aggregate federal government revenue is N8,653b, which includes VAT, independent revenues, company income tax, and all oil & gas taxes and royalties.
The Federal Non-Debt recurrent expenditures as of September 2023 is N4,729.53. This includes personal costs, pensions and gratuities, Overheads, and Service Wide Vote
Thus, the FGN recurring expense to revenues is 54%. If we add all recurring expenditures, including debt service, we get a total recurring expense-to-revenue ratio of 146%
However, keep in mind the total debt includes the external debt of various states whose payments are made via debits to their FAAC account by the FGN
Where will the FGN raise revenues to meet the 80% jump in expenses?
Well, from taxes, a lot of taxes
To meet this increased wage bill, the FGN needs to raise taxes and simultaneously cut expenses
Both are problematic. Can the FGN afford to tax an economy that is already in stagflation? Even if it widens the tax net, how many new taxpayers can afford an increased VAT?
It seems the path starts with severe fiscal discipline and an austerity measure to freeze all unnecessary spending and reduce the size and scope of the FGN. The Oransanye report is an excellent place to start.
The overarching solution to a weak economy is to cut taxes, not raise them. I hope the economic managers remember this
In closing, it’s important to remember that if the FGN can fight inflation to single digits, it can reduce labour unions’ demands to index wages to inflation.