January 31, 2024/CSL Research
Based on news reports, the Minister of State for Labour and Employment, Nkeiruka Onyejeocha, has urged members of the newly formed National Minimum Wage Committee to work swiftly to meet the 1 April deadline fixed to come up with a new wage structure for Nigerian workers.
The committee which had representatives from the federal and state governments, the private sector, and organized labour was inaugurated by the Vice-President on Tuesday at the State House in Abuja. There were increases in wages by the private sector in 2023 in response to the rising inflation and the government is set to increase wages in 2024.
Nigeria’s inflation rose to a 20-year high of 28.92% in December 2023, making it one of the highest in the world. The removal of the subsidy on petrol and the unification of the FX rates at the various official windows worsened inflationary pressures in 2023. Given the failing macroeconomic conditions in the country, more Nigerians were pushed below the poverty line in 2023. According to the World Bank, sluggish growth and rising inflation in Africa’s biggest economy have pushed an additional 24 million Nigerians into poverty in the last five years. Data from the bank shows that 14.2 million Nigerians became poor in 2023.
The implementation of the minimum wage is long overdue in our view, and we believe the expected increases will pale in significance when compared to the rise in living cost. That said, there is the need for both the State and Federal Governments to articulate clear and workable strategies to boost revenue to meet the associated increases in personnel cost.
At the federal level, government revenue remains pressured by elevated debt servicing cost amidst weak revenue generating capacity, a situation that has resulted in widening fiscal deficits. Recurrent non-debt expenditure (34.44% of total proposed spending) was up slightly by 6.44% y/y in the proposed 2024 budget, reflecting higher provisioning for personnel costs, which may
be linked to the potential increase in the minimum wage.
At the state level, heavy reliance on FAAC allocation which is inextricably linked to volatilities in crude oil prices amidst weak Internally generated revenues means that many state governments struggle to pay salaries when FAAC allocations dwindle.
For instance, states like Ekiti, Osun and Oyo could not pay their workers promptly during the recession- a situation that made the CBN disburse N614bn as bailout funds to state governments. It is imperative that state governments develop clear strategies to generate revenue to accommodate the associated increase in personnel costs to avoid a situation where salaries are increased on paper but are unable to be paid.
