N70,000 minimum wage and the onus on state governments, by Kunle Sanni

President Bola Tinubu and the organised labour unions agreed last week to increase the minimum wage for Nigerian workers to N70,000, which is a significant and positive development.

President of the Nigeria Labour Congress (NLC), Comrade Joe Ajaero, who briefed journalists after the labour meeting with the federal government disclosed the unions accepted the offer because of other incentives attached. These incentives, he said, included an agreement by President Tinubu’s administration to review the minimum wage every three years.

The government, on the other hand, also insisted it offered non-monetary incentives as its defence for the agreement such as a ₦35,000 wage award for Federal workers, ₦100 billion for CNG-fuelled buses and conversion kits, ₦125 billion for MSMEs, ₦25,000 for 15 million households for 3 months, and ₦185 billion in palliative loans to states to cushion the impact. Release of 42,000 metric tonnes of grains from strategic stocks; purchase and further distribution of 60,000 metric tons of rice from the Rice Millers Association; and the recent salary increase of 25-35 per cent on all consolidated salary structures for federal workers.

Nevertheless, the decisions sparked strong reactions across social media with many Nigerians saying the agreement has since shown a commitment by the current administration to improving workers’ lives and ensuring fair compensation for their hard work.

Experts argue that increasing the minimum wage could help reduce poverty, improve living conditions, boost the economy, and enhance worker happiness and productivity.

However, there is a debate about how this agreement will be implemented by many states and the private sector. Some governors have said they plan to hold more discussions before deciding, while others prefer to wait for actions from other states before making their own decisions.

Femi Falana, a senior advocate, recently argued that the Nigerian Constitution mandates all governors to adhere to the national minimum wage. He referred to past legal cases, such as the Oyo State Government v Alhaji Apampa & Ors (2008), in which the National Industrial Court ruled that paying less than the national minimum wage is against the law. He also cited the case of the Attorney General, Osun State v Nigeria Labour Congress (Osun State Council), where the court upheld that employers can pay more than the minimum wage but not less.

Brief background

The minimum wage was last hiked in 2019 to ₦30,000. As of May 2022, three years after adoption, seven states had failed to implement the minimum wage. Part of the reason for this is that states do not generate enough revenue internally to implement the minimum wage, let alone the necessary changes across all cadres. Most states still rely on monthly federal allocations to operate.

According to BudgIT, a fiscal transparency group, just three states—Lagos, Ogun, and Akwa Ibom—generate more internal revenue than they receive in federal subsidies.

Realities

Nigeria’s states are in a slightly different position from the federal government and the private sector. The Federal Government can print more money to meet the demands of labour, despite the potential damage to the economy. The private sector companies affected by the minimum wage increase can take various actions such as raising prices, reducing the size of their products, laying off staff, or, as a last resort, closing down, as many companies have already done.

For states, on the other hand, the situation is different. They cannot print money and have limits on the amount of debt they can take on. Consequently, they will need to rely on some form of loan from the government to meet their wage obligations. This has already been done in the past.

It’s worth noting that while many states have agreed to implement the new wage agreement quickly, some states may struggle to afford the new wage and may seek support to make it feasible. Additionally, labour unions have stated that they will take action against states that fail to pay the agreed wages, including the possibility of shutting down operations.

So much for so few

By convention, the new minimum wage agreement would have consequential adjustments as it applies to civil servants in Grades levels 1 to 6. But Grades 7 to 17 will also get an adjustment as well, leading to a significant effect on the personnel costs of the states. At the last increment, civil servants from Grades 7-17 got increases ranging from 10-23%.

Under the new ₦70,000 minimum wage, the wage bill of states is expected to increase by 70% on average, a huge jump. Sustaining it comes with costs at every level.

Already, a relatively small percentage of people get a significant portion of the state’s revenues as salaries and pensions, leaving little for things like infrastructure, education and healthcare.

The increase in the minimum wage will ensure that a fraction of the population gets an even larger chunk of revenues at the state and federal levels.

Recurrent expenditure – of which wages are a central component – is already sky-high. As of 2022, recurrent expenditure as a percentage of total revenue averages 89% for the 36 states, leaving little for important capital expenditure that is necessary to drive governance outcomes. With these, many states may exist to pay salaries and pensions, with little fiscal space for anything else.

Recently, a Nigerian civic organisation, BudgIT, said in a report that the implementation of the minimum wage was currently not feasible given the horizontal fiscal imbalance among the 36 states of the federation.

In its “Wage Bill of States” report, BudgIT said although the 36 states of the federation earned N7.85 trillion in 2023, 51% of the cumulative revenue went to the top eight states including Lagos, Delta, Rivers, Akwa Ibom, Bayelsa, Oyo, Ogun and Ondo, while 15 per cent of the amount was earned by Lagos alone, meaning that several states of the country are unable to pay the uniform minimum wage being demanded by the labour unions and just not feasible.

Given the states’ revenue capacity, wage bill and fiscal imbalance, BudgIT therefore, recommended that each state would have to negotiate its minimum wage based on its economic reality.

For example, last year, Kano nearly half of its revenue on personnel costs at 40.91%, Imo 37.64% and Adamawa 37.32%. States’ (excluding Taraba) 2023 personnel actual (salaries, allowances and social benefits including pensions and gratuity stood at N1.94 trillion to 1.16 million workers while the monthly average personnel cost per state employee stood at N4.74 billion to the same number of beneficiaries, according to BudgIT.

While the Nigerian Constitution mandates all governors to adhere to the national minimum wage, the consequential adjustment for all levels of the civil service could pose a challenge to smooth compliance. Just like the federal government, states are responsible for ensuring the welfare of their workers. Any deviation from this responsibility could exacerbate the situation and undermine the efforts of the federal government.