By Henry Boyo
It would be heartless to ignore organised labour’s demand for an urgent upward review of the subsisting N18,000 per month minimum wage, which was fixed over six years ago, when this income was above the international value of $150, i.e. above $5/day and more than double the poverty bench mark of less than $2/day.
Regrettably, as the naira crashed from about N155 between 2010 and 2011 to the present N360 = $1, the purchasing power of the same N18,000 minimum wage has now sadly dwindled to barely $0.50. Worse still, this value will pathetically diminish, if the inevitable distortions triggered by annual inflation rates between 10 and 17 per cent, since 2011, are also factored. It is undeniable, therefore, that millions of Nigerians, who earn N18,000 monthly salary, would have been shunted down the poverty drain in recent years.
Furthermore, the collateral reduction in consumer demand caused by the devastating crash in real income value would, invariably, also constrain cost effective capacity utilisation in factories and other commercial houses, and in turn, expectedly precipitate massive layoffs, with serious social and economic consequences, as indeed, presently amplified by the palpable level of insecurity, seemingly fuelled by a growing number of unemployed youths nationwide.
In reality, however, with ravaging devaluation and unyielding double digit inflation rates, every salary income that does not increase as fast as the prevailing inflation rate will invariably compel severe belt-tightening in most Nigerian homes. Arguably, the constant inability to successfully stretch depreciating income through every calendar month, may unfortunately, induce the temptation to engage in corrupt enrichment at workplaces and offices, particularly when children’s school fees, accommodation and medicare challenges also require urgent attention. Sadly, in such circumstances, an otherwise upright citizen may begin to rationalise any opportunity for corrupt enrichment as ‘”divine” provision.
The preceding is not intended to justify corruption in offices and workplaces, but, the temptation to engage in corrupt practices would, probably, be more courageously dismissed if workers’ legitimate wages commanded values that could accommodate some level of dignity in their lifestyles.
In retrospect, we recall that before the Structural Adjustment Programme in 1986, middle-level administrative officers, including teachers, built personal homes and funded (often with significant sacrifice) their children’s education, even up to tertiary level, from legitimate incomes, admittedly, often with support from enterprising spouses.
Similarly, it is still commonplace in the UK, which was once our colonial overlord, for blue collar workers such as drivers and road sweepers, for example, with regular jobs, to obtain facilities to buy a car or a house, so long as their projected legitimate income will cover the agreed mortgage payments by instalment.
Conversely, it is impossible for a Nigerian white collar executive, with an exceptionally handsome N1m monthly salary package, to acquire a simple three-bedroom apartment, after the usual deductions, such as taxes and other existential commitments are made from their legitimate salaries.
Thus, in view of the obvious social and economic significance of paying realistic living wages, it would be truly inconceivable to challenge labour’s pressing demand for an urgent, significant upward review of the minimum wage to N56,000/month, (or $3/day) i.e. a purchasing value of about $150/month, when N360 exchanges for $1 in the foreign exchange market, so that the new minimum wage will in effect, exceed the $2/day poverty benchmark. Nonetheless, a N56,000 monthly income may still not provide any surplus, as savings, to acquire a car, let alone a house, and indeed, the popular expectation that N56k/month would triple the present spending capacity of N18,000 and relieve domestic and other existential pressures may regrettably remain elusive.
The article titled, “N56,000 minimum wage or a stronger naira?”, was first published on May 2, 2016 in this column. I hereby reproduce a summary of that article hereafter four your reading pleasure. Please read on:
‘The Nigeria Labour Congress President, Comrade Ayuba Wabba, told a news conference last week (April 2016), in Abuja that even though it was true that the economy was not doing well, the law states that wages for workers must be reviewed after every five years’. However, in reality, any significant wage increase, at this time, will regrettably, most certainly, cripple the economies of several states, as their salary bills will become tripled to produce heavily lopsided recurrent budget, that will compel more borrowing to significantly expand the existing, seriously worrisome debt burden, and ultimately diminish any prospect of impactful infrastructural development in most states. Similarly, private sector business operators, particularly in the vulnerable Small and Medium Enterprises subsector, that still manage to survive will become threatened, if N56,000 becomes enacted as minimum wage for all workers.
Nonetheless, the joy of a N56,000 minimum wage will also be quickly erased by a steady rise in the general price level, which will be caused inevitably by surplus naira in the market, and ultimately, inflation rate may well exceed 20 per cent from the current volatile springboard of 12.8 per cent.
Invariably, spiralling inflation will significantly reduce consumer demand, discourage domestic production and will ultimately fuel an already combustible unemployment rate, with distasteful social and economic consequences. Unfortunately, the very high cost of borrowing, that is irrepressibly instigated by the inexplicable albatross of surplus naira supply will ultimately also restrain the productive sector’s capacity to create jobs and produce price/quality competitive goods that can earn export revenue.
Instructively, reprieve from this cyclical bondage may be achieved only if inflation is tamed to best practice rates below three per cent. Unfortunately, however, the significant increase in money supply that is inevitably caused by the 200 per cent rise in nominal wages across board would, however, make such fine achievement in monetary management economic salvation impossible.
Furthermore, indeed, any significant increase in money supply would also quickly compel the CBN to also step up its compulsive, counterproductive, high interest borrowings, to reduce the admittedly bloated naira values in the system to restrain inflation. Unfortunately, this process would propel higher interest rates and also crowd out the real sector, from ready access to cheap funds required for expanding domestic production and creating jobs, even when the funds mopped up with such oppressive cost simply remain inexplicably sterilised from any use in the CBN vaults!
In fact, in socially sensitive money markets, in more successful economies, commercial banks are conversely compelled to pay a modest penalty fee to their respective Central Banks to warehouse surplus funds which are in the custody of commercial banks.
Consequently, if high inflation rate fuelled by persistent and increasingly excess money supply remains untamed, government would need to carefully examine how successful economies sensitively manage money supply to ensure that the presence of surplus money supply does not become problematic to trigger inflation beyond, say three per cent, so that the cost of borrowing can remain socially supportive below 10 per cent.
The CBN obviously does not deny the conclusion in the ‘Monetary Policy Thrust’ statement in government’s Vision 2020 blueprint, that the monetisation of distributable dollar revenue (read as unilateral determination of rate and substitution of naira for dollar denominated revenue) is actually the primary cause of persistently excess naira, with its train of disenabling, and counterproductive monetary indices, such as, unusually high inflation and cost of funds, as well as weaker naira rates.
Conversely, astute, best practice management of money supply, particularly with regard to the forex market will gradually strengthen and sustain the naira below N100 = $1. In such event, the subsisting N18,000 minimum wage would, without much ado and abrasive negotiations for wage increases, actually command the purchasing power of almost $200. Fortunately, the liquidity problem can become better managed if the CBN breaks its stranglehold monopoly in the forex market and ceases to auction dollars for higher naira bids in a market with unceasing naira surplus, that is, ironically, largely created by the CBN’s unilateral naira substitution for distributable dollar denominated revenue.