Nigerians are currently experiencing a historic and alarming increase in the prices of goods and services, marking one of the most challenging episodes in recent history. This general price hike began in 2022 due to global supply chain bottlenecks, the impact of the Russia-Ukraine war, and widespread insecurity in Nigeria. The situation was exacerbated by the removal of the fuel subsidy on May 29, 2023, resulting in a 223% increase in petrol prices, coupled with the Naira’s devaluation to N1,500/$ following forex market reforms introduced by the Central Bank of Nigeria (CBN).
As a result, prices of basic food items and transportation have more than doubled between May 2023 and May 2024, according to data from the National Bureau of Statistics (NBS). Reflecting this trend, the annual inflation rate rose to 33.95% in May 2024, the highest in 28 years, while food inflation surged to 40.66% from 23.65% over the same period.
Declining Purchasing Power
The purchasing power of the nation’s currency, the Naira, has significantly declined. For example, according to the NBS Food Price Watch report, the quantity of yam tubers that N5,000 could purchase decreased from 11 in May 2023 to just four in May 2024. Similarly, the quantity of imported rice (1kg) that N5,000 could buy reduced from 6.3 kg to 2.5 kg over the same period. This trend indicates a falling standard of living for most Nigerians, particularly those relying on a single source of income, such as a monthly wage.
In response to this development and to mitigate the impact of crushing inflation on Nigerian workers’ living standards, labour unions led by the Nigerian Labour Congress (NLC) and the Trade Union Congress (TUC) have demanded an upward review of the minimum wage from N30,000. NLC President, Comrade Joe Ajaero, highlighted the need for this adjustment at the 8th Vanguard Economic Discourse, citing the significant increase in living costs.
Historical Lessons and Expert Caution
While the demand for a higher minimum wage is justified given the sharp rise in inflation and declining purchasing power, experts caution that any increase must be carefully considered to avoid exacerbating current macroeconomic challenges, such as inflation and unemployment. Dele Sobowale, a Vanguard columnist, recalled the impact of the Udoji Panel salary increase of 1975-76, which led to substantial inflation and neutralized the gains within a few years, ultimately contributing to Nigeria’s first recession in the early 1980s.
Private Sector Impact
The inflationary trend has also negatively impacted businesses, with 15 top manufacturing firms recording losses of N266 billion in the 2023 operating year, a 183% decline from the previous year’s N320 billion profit. This was due to declining sales, an increase in unsold goods, and a 25.5% rise in raw material costs triggered by Naira devaluation and rising inflation. Eminent economist Bismarck Rewane stressed the importance of considering the private sector’s ability to pay higher wages, noting the current economic challenges and the potential for increased borrowing costs.
State Government Finances
The financial capability of state and local governments is another critical issue, particularly given the impact of inflation on their revenues. The removal of fuel subsidies and Naira depreciation led to a nominal increase in Federation Accounts Allocation Committee (FAAC) revenues. However, this increase was moderated by the surge in inflation, reducing the real value of additional revenues. The financial statements of state governments revealed a notable average recurrent revenue growth rate of 9%, which was still lower than the average personnel cost growth rate of 6%. This highlights the potential financial challenges for state governments in implementing further wage increases.
Conclusion
The analysis of wage policies and economic dynamics in Nigeria illuminates the critical challenges and complexities involved. The broader economic context, marked by fluctuating GDP growth rates and the unintended consequences of federal policies on inflation and poverty levels, underscores the interconnectedness of fiscal decisions. The real value of additional revenues has shrunk due to inflation, limiting state governments’ response options to the current socio-economic crisis and emphasizing the need for a delicate balance.
Hence, it is crucial to recognize state governments’ limitations in addressing today’s socio-economic situation. While state governments can influence fiscal policy, achieving the desired results requires a complementarity of fiscal and monetary policies at the federal level. Any approach to wage increases should align minimum wage adjustments with economic realities at the state level, prioritizing fiscal sustainability.
