(Additional reporting and analysis by Adewunmi Emoruwa)
It has been a long time coming for Nigerian workers, who will now earn a minimum of N30,000 ($82) as monthly minimum wage following President Muhammadu Buhari’s assent to the Minimum Wage Repeal and Re-enactment Bill 2019. The Presidency announced the raise in wages mid-April.
Backstory: The minimum wage bill which was transmitted to Buhari by the National Assembly on March 27 was not without its own shares of twists and turns. Last year, the President alongside past leaders and members of the Council of State, had approved N27,000 as the new minimum wage, N3,000 less than the original demand of the Nigerian Labor Congress. However, following the recommendations of a council headed by Birsmark Rewane of Financial Derivatives, the N30,000 demand was accepted, with hints at a tax increase, to provide funds.
What is Expected of Employers and Employees: The new law mandates all “agencies, persons and bodies” (except employers with less than 25 workers) employing labor in Nigeria to pay the sum of N30,000 to their workers. Also excluded are Nigerian workers who work in ships outside Nigeria’s jurisdiction and other persons who are in other kinds of regulated employment, which are accepted by the Act. Workers have the right to sue if they are denied their standard wage outside these circumstances.
More questions than answers: The new law which takes effect immediately, is going to impact the Nigerian economy and labor market. While most people agree that the previous wage is not enough to meet the living conditions of workers, this major move by the newly re-elected government, still leaves more questions than answers.
- It is short on details on how the government plans to source for funds to finance the 66.6% wage rise. Nigeria’s government is currently spending over 60% of its revenue on debt servicing according to the International Monetary Fund.
- The plans to increase tax especially the consumption tax (VAT) sounds dodgy as it would likely diminish the value of the new wage. Nigerian Tax expert at accounting firm PwC, Taiwo Oyedele is a leading advocate against the proposed tax hike to support the increased wage bill. He argued that there will be reduced revenue than the government expects from the proposal and that it will lead to “higher inflation, interest rate hike, more unemployment and people will generally become poorer.”
- Data suggests that the increases do not significantly improve living conditions. According to an analysis by the African Heritage Institution: “percentage changes in minimum wage have always been smaller than that of exchange rate and Consumer Purchasing Index, indicating that the increases in minimum wage were not enough to ensure that workers maintain their family budget and purchasing power compared to the base year.
- What will the government do to handle the expected negative economic impact of the minimum wage increase? According to a report by the Ngozi Okonjo-Iweala led think-tank, CSEA Africa, the minimum wage increase might lead to significant job losses. “A survey by the NBS showed that between 2011 when there was a rise in minimum wage and 2012, about 1.43 million people who were fully employed or underemployed lost their jobs. Although there was an increase in the labour force population, the total number of unemployed persons rose by 82.5% to 7.3 million. It is likely that the implementation of the 2019 approved minimum wage may project a similar trend given past occurrences.”
- There has also been several concerns around inflation hike as a result of the new minimum wage increase. Central Bank Governor, Godwin Emefiele disagrees with this idea. He has largely argued that the raise will spur growth in the economy, “due to prolonged weak aggregate demand arising from salary arrears and contractor debt”.
- How does government plan to enforce compliance with the law on the side of the employers, given the cost and inconvenience of widespread legal action?
One suggestion we like: Dr. Ogho Okiti, BusinessDay newpaper’s chief economist columnist advocated for an hourly minimum wage instead of a monthly one and in line with the realities of the new economy. “Today’s work environment is not as rigid as it used to be; more and more people are engaged in freelance employment, contract jobs, commission based employment, and part-time employments. The Act, as it excludes these groups, creates room for labour exploitation. There are also many jobs in governments that can leverage on hourly wages legislation.”