The leadership of Organised Labour have eagerly welcomed President Muhammadu Buhari’s establishment of a committee to consider a significant increase in the minimum wage. The President of the United Labour Congress, Comrade Joe Ajaero, for example, has demanded a N100, 000 minimum wage, while also advising his members to “prepare for war” against those state governors, in the committee, who are currently defaulting on the present N18, 000 minimum wage.
Ultimately, however, the question must be how much relief will a quantum leap in a new minimum wage provide to workers?
Although labour leaders will readily acknowledge that even the clearly more conservative demand for N36,000 will only command the current international market value of $100 at current exchange rates, paradoxically, however, labour leaders remain evidently unconcerned as to why the real value of N125 minimum wage exceeded $100 in 1981, especially when the country’s external reserves hardly approached $10bn during those years.
The predictable outcome from the foregoing trend is that if double digit inflation rates and endlessly sliding naira exchange rates persist, the adoption of N100, 000 may become inevitable as the minimum wage before the five-year cycle legislated for review runs out.
The following narrative is a summary of an article which was published in Vanguard Newspaper on December 25, 2006, with the title “More money or better value”. Labour leaders have, unexpectedly, still failed, 10 years after, to learn the important lesson that wage increases may ultimately not result in higher purchasing power. Please read on.
“Nigerians and the labour unions especially, inexplicably, clamour for optically larger incomes rather than demand relative stability in the purchasing value of their incomes. Instructively, the naira was once equal to the British Pound Sterling, while $1 exchanged for about 50 kobo. During this period, it was generally unheard of for a Nigerian, who is resident or studying in the UK, to send money back home to Nigeria either for upkeep or as supplementary income for dependants back home. Indeed, the dream of every Nigerian youth, who went abroad, at that time, was to return to the comfort of home and friends and the ‘better life’ in Nigeria.
Today, the percentage of Nigerians who can educate their children abroad from income derived from legitimate wages or enterprise, as opposed to the proceeds of treasury looting and other such corrupt engagements, has diminished significantly. Worse still, impoverished as we are, we make heavy sacrifices to train our children from our scarce resources, only to turn them out, thereafter, into a jobless market, which ultimately propels some of them to seek extremely mean jobs abroad as greener pastures! But who cares? Those youths who can make it either legally or illegally via perilous desert routes and wide open seas may ultimately become providers for the increasingly impoverished and helpless families they left behind in Nigeria. This desperation ‘to check out’ has gradually developed with the steady loss in naira’s purchasing power!
There are basically two main ways in which the currency of a country can lose value; these are by an uncontrolled inflationary spiral (unabated rising prices of goods and services over time) and/or by an actual formal devaluation of a nation’s currency by the monetary authorities! In our case, both factors have conspired to wreak havoc on our value system, our lifestyle, and our hopes and aspirations, both as individuals and as a people.
Consequently, as the naira continued to depreciate from stronger than parity to its current rate of N130=$1 (2006), this has meant that an average family whose income was, say N10,000/annum in 1980, would require a minimum salary of N1,300,000/annum today to maintain the same real income value. The gargantuan leap in nominal income is partly responsible for the devastation caused by spiralling inflation over the last 25 years. For example, a bag of rice which cost less than N20 in 1980 now costs over N7,000; a finger of plantain which cost less than 10 kobo now costs over N20. So, an average Nigerian family would require over N2m in 2006 to maintain the same standard of living that they enjoyed with less than N20, 000 in the 1980s; but pray, after the decimation of the middle class by the evil twins of devaluation and inflation, how many Nigerians currently earn such money? Various administrations have often been compelled by intense pressure, from labour unions, to pump up quantum salaries paid to workers, so that they can marginally ameliorate the ravages of a currency with a steadily diminishing value. However, it is clear that a yawning gap presently exists between the higher numerical wage levels and the reduced quantum of goods and services and lifestyle people can actually afford.
For example, in December 2006, in order to provide some relief, the Federal Government approved a 15 per cent wage increase for all civil servants with effect from January 2007 (see page 5: Guardian Newspaper of December 20, 2006). Under normal circumstances, any attempt to bridge the poverty gap caused by loss in purchasing power of incomes would be welcome, but in a situation where the monetary authorities fervently decry the unyielding oppressive and distortional presence of too much cash (otherwise known as excess naira liquidity) in the system, and the inflationary threat of an inevitable rise in petrol pump prices (with reduced subsidy indicated in 2007 budget), plus the equally legitimate pressure to spend more of our idle accumulated reserves to improve decayed infrastructure, it may be a pipe dream to expect that the recently approved bigger quantum salaries will bring succour to any home. Although incomes and salaries invariably become nominally bigger, with any increase in minimum wage, however the collateral loss in naira purchasing value as a result of acceleration in inflation rates will, as usual, ultimately leave a majority of our people poorer than they were in 2006!
I never cease to be amazed that in spite of this recurrent cycle of increasing salaries and income and abiding poverty, Labour unions continue to clamour for quantum elevation rather than demand that the income they earn receive better value, so that the same income will buy more and more rather than less and less! Sadly, Labour leaders, seem enamoured by the theme of “big is good,” but they obviously fail to see that less could command better value.
I have advocated in several articles in this column that the naira in our pockets can and will buy more, if the value of the naira is not debased by the conversion of our export dollar earnings into naira before allocation to the three tiers of government. The need to consolidate the naira from the money market as well as the additional currency printed for this purpose, remains the bane of our monetary system. So long as this system persists, the naira will continue to be under pressure to depreciate, even in the face of rising external reserves. This has been our reality for decades; this is an economic paradox, if ever there was one!
However, if the CBN is compelled to release its stranglehold on the supply side of the foreign exchange market by the payment of allocations from the dollar component of the federation pool with dollar certificates, the naira will quickly consolidate and fall below N50=$1 as dollar values chase limited naira supply. In such an event, all the economic policy shenanigans which have brought additional suffering to the masses will become unnecessary, as inflation may drop as low as 1 percent while it will become cheaper to borrow with interest rate mechanically trending below seven per cent i.e. the requisite parameters for real growth in a sensibly managed economy. The authorities know this, but the watchword is for self rather than communal interest. Heaven help us!”
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