A boost to demand from the minimum wage

Nigerians are set to see the first rise in the national minimum wage since 2010. We cannot put a time on the boost to incomes since proposals have been passed by the House of Representatives and await the Senate’s go-ahead. The National Assembly is preoccupied with the elections. We understand that the minimum will be lifted from N18,000 per month to N27,000 for state governments and the private sector, and N30,000 for the FGN, subject to unspecified exemptions for small companies.

  • The inflationary impact is unclear. The m/m data covering the earlier hike in the minimum wage in 2010 is inconclusive. The monetary policy committee suggests that the influence of the expansionary fiscal stance ahead of the forthcoming elections, including the wage proposals, may have been overstated due to the weakness of domestic demand.
  • It would be difficult to justify the increase on the basis of productivity. However, social cohesion and the need to rebuild shattered household budgets dictate otherwise. The current minimum is among the lowest in Africa.
  • The FGN, as we have often said, is able to meet the proposed increase. There are no data publicly available on how many employees of ministries, departments and agencies (MDAs) are currently paid less than the minimum. The number may be small but the rise requires that the differential is maintained for all employees.
  • The FGN’s personnel bill in 2017 amounted to N1.87trn. Spending was in line with the budget: governments everywhere pay their staff as a priority and make any cuts required due to revenue shortfalls on the capital side.
  • The FGN’s 2019 budget proposals project personnel spending of N2.45trn, an increase of N340bn or 16.1% on the previous year’s approved budget. They make clear that a rise in the minimum wage is incorporated in the projections. For the funding of an increase on this scale, we might look to the improvement in collections by the Federal Internal Revenue Service and the hints from the FGN that a rise in VAT is under consideration.
  • A greater burden will be borne by state governments, many of which are still in arrears on their salary/pension payments. Their pressures were highlighted by an earlier push by a governors’ forum for a new N22,700 minimum.
  • Over time the states could cure their fiscal challenge with a sizeable boost to their internally generated revenue. However, this is not realistic for all states, which helps to explain calls for changes to the revenue-sharing formula. Dramatic constitutional changes are beyond our remit.

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