On Monday, June 3, 2024, the Nigerian Labour Congress (NLC) will be embarking on a nationwide strike.
Unions are going on strike over their disagreement with the federal government to implement their recommendations for a new national minimum wage.
In the last one year, Nigerians have had to stomach escalating price increases, stemming from the removal of fuel subsidy, massive exchange rate depreciation and imported inflation arising from the increase in global commodity prices.
To a lot of people, Nigeria’s April inflation rate of 33.7% does not tell the whole story as many have seen prices of goods and services, especially food, more than double in the last one year.
However one might argue that Nigeria is not the only country experiencing escalating inflation and will posit that it is a global phenomenon.
In fact, this author opines that despite Nigeria’s record-breaking inflation rates, most prices of goods and services are still cheaper in Nigeria compared to other countries.
Consider this: a 75ml bottle of water in a regular shop in the United States could cost between $2.5 and $5. A medium-sized coffee in the UK goes for around £3, and it would take about $80 to fill a 90-liter fuel tank.
A single room in a 4-star hotel starts at around $200 in many parts of the world, often without the perks like concierge services or complimentary breakfast and Wi-Fi. What you will typically get in a 3-star hotel in Nigeria.
Meanwhile, a 30-minute Uber ride in the U.S. might set you back about $30, not including the customary tip. That is around a third of a flight ticket in Nigeria.
Now, apply an exchange rate of N1,300 to $1 to all of the above, and the cost disparity becomes stark for anyone earning in Nigeria.
If you come down to basic meals for an average Nigerian, NBS data suggest the cost of a healthy diet in Nigeria per adult is around N1,000 which is less than $1 a day using official exchange rates.
No surprises, as global macroeconomic trends and comparisons also buttress the varying levels of cost of living in Nigeria versus other countries in the world.
Numbeo, a global data website estimates that the cost of living in Nigeria is 45 to 50% (cheaper than the US) and comparatively cheaper when compared to other richer countries. The real issue here is wages.
In Nigeria, the minimum wage fluctuates around N30,000 to N70,000, depending on the political discourse, translating to about N3,500 per day or a mere N388 ($0.29) per hour.
- Compare this to wages in developed countries like Germany ($14.68 per hour), the UK ($14.27), France ($13.33), and the US, where most states offer above $14 per hour.
- The vast wage gap illustrates that while nominal prices might be higher overseas, the purchasing power in Nigeria is considerably weaker.
- The impact of this is a vicious cycle, low pricing of goods and services, means low profits compared to international standards.
- These low profits compared to international standards mean a serious disincentive for businesses to invest let alone for FDI to be attracted to Nigeria.
Ultimately, weak Foreign Direct investment adversely impacts jobs and by extension wages.
For context, in Nigeria, the arrival of the GSM era and associated investments heralded the arrival of large multinationals such as Airtel, MTN, IHS et al which created many jobs and boosted middle-income wages for Nigeria. Today, we have more multinationals leaving that investing and those remaining facing unprecedented
Thus, despite an inflation rate hitting a 20-year high at 33%, leading to unprecedented poverty levels and price hikes, the actual cost of similar goods and services in Nigeria remains lower than abroad, yet affordability is a major challenge locally.
But does this mean inflation is not a problem? Far from it. Inflation continues to plague the Nigerian economy, drawing the central bank’s top concern.
However, this comparative data suggests that Nigeria’s economic challenges stem more from lack of productivity, profits and weak investments…consequently, price increases are a reflection of inefficiencies across the entire value and productivity chain…from farm yields to transportation and outdated markets and urban layouts.
However, the detailed inventory of inefficiencies that adversely impact Nigeria’s inflation is a whole topic on its own. Without enhanced productivity, jobs and wages stagnate, stifling the creative and economic potential necessary for growth and improved living standards.
The crux of the matter is not just inflation but the inability to attract sufficient capital for large-scale projects that can generate jobs and stimulate economic activity.
What Nigeria needs is a surge in foreign direct investment (FDI)—to the tune of over $50 billion annually for the next five years. This figure represents half of the estimated $100 billion infrastructure deficit cited by the World Bank.
To put it into context, Nigeria has only attracted $11.7 billion in FDI in the last 10 years combined. However, attracting such monumental FDI requires significant policy reforms.
A comprehensive overhaul of the laws governing business, the revitalization of our capital markets to attract larger corporations, extending to the revamp of the Land Use Act, the Companies and Allied Matters Act (CAMA), and several other legislations, is imperative.
Nigeria’s policymaking needs to reward businesses and risk-taking, rather than its present focus on rent seeking and taking cuts.
These reforms must create the right incentives to attract the investments that could transform the economic landscape.
The way forward involves a delicate balance of policy reform, enhanced wage structures, and strategic foreign investments, all aimed at boosting productivity and, by extension, the quality of life for Nigerians.
Only then can we truly enhance our purchasing power, making what seems cheap actually affordable.