Minimum Wage: Labour Demand and Nigeria’s Economic Realities

Oluchi Chibuzor urges the organised labour to consider Nigeria’s economic realities in its negotiation for a new national minimum wage

The organised labour, the federal government and members of the organised private sector have been engaged in an intense negotiation for a new minimum wage for the country.

In accordance with the National Minimum Wage Act of 2019 that  established the legal framework for periodic reviews of the minimum wage every five years, the organised labour is presently pushing for a comprehensive reassessment and adjustment of the national minimum wage.

At the last sitting of the Tripartite Committee on Minimum Wage in Abuja, both the government side and representatives of the private sector made a final offer of N62,000 while organised labour represented by the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) came down from their initial demand of N615,000 to N250,000.

The Tripartite Committee on National Minimum Wage led by Alhaji Bukar Goni Aji, has since submitted its report to the Secretary to the Government of the Federation, Senator George Akume, who in turn has submitted it to President Bola Tinubu to act on.

In 2019, the minimum wage was raised to N30,000, a significant increase from the previous N18,000 established in 2011.

On January 30, 2024, Tinubu appointed a 37-member committee for a new national minimum wage for Nigeria. The committee includes members from the federal and state governments, private sector and the organised labour. Representing various geographical regions, the panel includes Governors such as Umar Bago (Niger); Bala Mohammed (Bauchi); Dikko Radda (Katsina); Charles Soludo (Anambra); Ademola Adeleke (Osun), and Otu Bassey (Cross River), tasked with deliberating and proposing a revised national minimum wage.

However, the manner in which the NLC and TUC is going about the matter makes it look like they are having a trade dispute with the federal government. Labour is not considering the ability of other parties in the negotiation, which includes the states and the private sector to pay the amount it is demanding. While the state governors, despite receiving higher allocation from the Federation Account Allocation Committee (FAAC), since Tinubu assumed office, have stressed that N60,000 minimum wage is not sustainable and would be difficult for them to pay, some members of the organised private sector (OPS) have also expressed concern over their inability to pay. Even the OPS members that are able to pay are confronted with challenges such as numerous taxes and levies, high inflation, foreign exchange scarcity, among others, which raising the minimum wage further could hurt their operations and could force them to sack their workers.

Also, the Association of Local Government of Nigeria (ALGON) has raised concerns over the proposed N62,000 minimum wage, saying if approved, its members may not be able to pay.

ALGON National President, Aminu Muazu-Maifata, said it would be difficult for LGAs’ administrations to pay the N62,000 proposed minimum wage. According to him, some of the 774 LGAs in the country are still struggling to pay the N30,000 minimum wage approved in 2019.

“With the present allocation from FAAC, no local government council anywhere in Nigeria can be able to pay N62,000,” the ALGON president said.

He added, “Presently, 90 per cent of our inflow from the Federation Account goes into salaries and pensions. Without an upward review of the percentage of allocation to local government councils, it will be extremely difficult or even impossible for them to pay N62,000 minimum wage.

“The 774 local government councils received slightly above 18 per cent of the total FAAC of the federation, while the federal government received above 52 percent.

“Some councils could not even afford the N30,000 and are still working on the N18,000. Whatever is coming from FAAC presently, 90 percent goes into salaries and pensions.

“This tells us that without adjustment and an upward review of the percentage of the allocation coming to local councils, it will be extremely difficult or impossible for local government councils to pay N62,000.”

Chairman of Lafia Local Government, Nasarawa State, said if the proposed minimum wage law is approved, local governments would have to turn to governors and the federal government for financial augmentation.

According to him, councils perform multiple functions beyond salary payments and these obligations should be considered when determining an affordable and sustainable minimum wage.

Indeed, a national minimum wage affects states, local governments and private sector employers, especially small and micro enterprises (SMEs) and micro, small and medium enterprises (MSMEs). The first consideration in wage negotiation is affordability and ability to pay.

Over the past few years, the country’s economic growth trajectory has been marked by fluctuations and challenges, as reflected in the annual Gross Domestic Product (GDP) growth rates.

That was why the Minister of Information and National Orientation Mohammed Idris, has emphasised the need for a realistic and sustainable wage system that balances workers’ needs with the country’s economic realities.

While Idris acknowledged the government’s commitment to reviewing the minimum wage, he cautioned against demands that could harm the economy.

 “As I have repeatedly said, the federal government is not opposed to the increase of wages for Nigerian workers but we keep on advocating for a realistic and sustainable wage system for the workers – a wage system that will not undermine the economy, lead to mass retrenchment of workers and jeopardise the welfare of about 200 million Nigerians.

“We want the labour unions to understand that the relief that Nigerians are expecting, and that they fully deserve, will not come only in the form of an increase in wages.

 “It will also come as efforts to reduce the cost of living and to ensure that more money stays in the pockets of Nigerians. And this is where programmes like the Presidential Compressed Natural Gas (CNG) initiative comes in.

“By replacing or complementing petrol usage with CNG, that programme alone will cut transportation costs by as much as 50 per cent,” Idris added.

The federal government’s decision to eliminate fuel subsidies and implement a managed exchange rate float, which, while aiming to achieve stability and resilience, inadvertently led to a cost-of-living crisis underpinned by a sustained increase in the general price level of goods and services, resulted in a decrease in the purchasing power and increased poverty levels.

Significantly, headline inflation surged from 22.4 per cent in May 2023 to 28.9 per cent in December 2023. During this period, the price of Premium Motor Spirit (PMS), popularly know as petrol, increased from about N198/litre to N626/litre between May and December 2023. Additionally, there was a notable devaluation of the naira against the USD, moving from N461:US$1 to N1,493:US$1. These adverse effects prompted mid-year budget amendments by the state governments.

Removing subsidies and the Naira’s managed float led to an increase in nominal FAAC revenues, coinciding with a surge in headline inflation. The real value of FAAC net deductions increased marginally, rising from N1.39 trillion in the first half of the year to N1.52 trillion in the second half of 2023. This indicates that the additional revenues, in real terms, have shrunk with the increase in monthly inflation that followed both policies.

Moreover, the subsidy removal and exchange rate float only led to the states earning an additional nominal revenue of N231.7 billion from FAAC in the second half of 2023, compared to the first half. This excludes foregone revenue through a debt swap agreement with the federal government and monthly savings directed to the infrastructure

 In 2019, most state’s faced constrained fiscal space, preventing the implementation of the current minimum wage.

The real value of additional revenues has shrunk due to the surge in inflation, restricting the response options for state’s to the current socio-economic crisis and emphasising the delicate balance the states must maintain. It is crucial to recognize state governments’ limitations in addressing today’s socio-economic situation. While the state governments can influence fiscal policy, it requires complementarity of fiscal and monetary policies at the federal level to achieve the much-desired results. Any wage increase approach should align minimum wage adjustments with economic realities at the subnational level, prioritising the fiscal sustainability of the states.

That is why some Senior Advocates of Nigeria (SANs) recently argued that states should be allowed to independently fix minimum wage for workers in their respective states.

Reverend John Baiyesea (SAN) argued that rich states like Lagos, Kano, Rivers, should not be expected to pay workers the same amount as Kwara, Ekiti, Niger, and Zamfara states, which are considered not to be rich.

“Therefore, negotiations ought to be from state to state based on capacities and capabilities of each state,” he said.

According to him, the National Assembly passed a National Minimum Wage Act of 2019, which fixed the minimum wage at N30,000, but up to 10 states have not been able to pay the N30,000.

Similarly, Dayo Akinlaja (SAN) also argued that states should negotiate their own minimum wage.

“It stands to reason and logic that since the states are not equally endowed in terms of resources and wherewithal, no one state should be compelled to pay the same minimum wage with another or the federal government. It has to be understood that this is one of the touchstones that fundamentally define and render what we practice to be at best a pseudo federal system,” he said.

According to him, “if there is any area that the Constitution has to be promptly tinkered with, this national minimum wage with its attendant debacle is a veritable one,” he added.

For Mallam Ahmed Raji (SAN), the federating units should negotiate their minimum wage because of the differences in their financial capacities.

According to him, the federal government should not negotiate for the states, adding that “in a federal system with a lot of distinct peculiarities in the states, it appears a bit odd.”

“The states are not equally endowed. A federal system promotes healthy competition among the states. Minimum wage is one area of competition,” he added.

 Therefore, the organised labour must ensure that it considers Nigeria’s present economic realities in its negotiation so as not to force the government to agree to a minimum wage that would not be sustainable and lead to job cuts.