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Is a Minimum Wage the Solution for Nigeria?

The labour movement may be short sighted to focus its attentions on the creation of a minimum wage.
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Lagos, Nigeria:

Nigeria is about to implement a new minimum wage bill ratified by President Goodluck Jonathan in March 2011. A delay in implementation prompted organised labour to threaten strike action planned to commence last month, however, the strike was suspended at the last minute after a meeting between the executives of the Nigerian Labour Congress (NLC) and the federal government.

The new minimum wage is seen as a heavy financial responsibility, especially for state governments which lament their inability to pay the new wage from the meagre revenue allocation they receive from the federal government. This has further angered the organised labour movement. Opinion is divided along conventional ideological lines, but the situation is more complex than meets the eye, and a more pragmatic view might see someone with an instinctively pro-worker view switch sides and oppose the strikes.

A tool of the past?

Historically organised labour strike actions in Nigeria have been an effective tool for making demands on government. Since the late 1980s, the NLC has intervened at key moments in Nigeria’s political struggle. During this period, the NLC caught the government’s attention and on occasion forced the reversal of unpopular policies. In 1993, organised labour protested the annulled election of MKO Abiola. The Labour union in 1994 stood against Abacha’s brutal reign. Similarly, the union used strike action to resist government plans to hike fuel prices during the Obasanjo administration. These, in part, earned us our democracy.

But the days of the unions leading from the front on matters of national significance seem to have passed, and in recent times they only crack the whip when they want the government to increase their salaries. The NLC approach is now reactive rather than proactive. It is this approach that makes work conditions and welfare package measures below what can ideally be described as a living wage.

A life of hardship

Life in Lagos is expensive: in parts of the city, the cost of living is comparable to that in Western cities. Low income earners have moved to the fringes of the cities and slums like Makoko, a town on stilts where rent for a shabby room is about $13 a month. The story is similar in Abuja, or Port Harcourt. Allegedly, these are the places where the jobs are, yet every year, thousands of graduates find themselves disappointed after trooping to these cities. Many of these jobseekers depend on someone who is employed.

The dependency ratio has become very burdensome and every earner’s income is overstretched. With current employment level, dependency ratio in Nigeria reads 84.01 per 100 people of working age population. The picture is uglier in reality. A typical Nigerian family comprises at least four members. In some cases it comprises a seven- to nine-member family unit with an additional five dependents.

The plight of a worker earning the N18,000 ($120) minimum wage becomes clearer when you factor in unemployment. In 2010, the official figure was 19.7% but it is not unusual for 600 applicants to apply for one vacancy. Even if the minimum wage was pegged at N50,000, it wouldn’t be enough to meet the needs of the worker and his or her dependents.

Profligate spending

Unfortunately, this hardship exists alongside profligate spending of public funds. Indeed, the new finance minister, Ngozi Okonjo-Iweala stated that Nigeria’s overhead expenditure is a greater problem than the minimum wage. Her observation corroborates Central Bank Governor Sanusi Lamido’s earlier outcry regarding recurrent costs. Spending on infrastructure gulped billions of Naira but with little to show. Between 1999 and 2007 Nigeria spent over $826.6 million on railway contracts. But the rail system does not work, while electrical blackouts are common.

Even without corruption, politicians receive huge allocations. While they live the high life and send their children overseas because Nigerian public schools are substandard, labour reaps little reward. Labour should think of it this way: if an ordinary senator in Nigeria receives N20 million monthly (about $133,000, one-third of their quarterly allowance), it would take a worker on N18,000 (about $120) monthly salary 93 years to earn that same amount.

Game of politics

This is surely a game of politics: and the politicians have the upper hand. The federal government resolved to pay the new wage to workers on levels one to six while levels seven to seventeen must wait until January 2012. And the N18,000 minimum wage bill was only signed into law in March 2011, just before the elections. One gets a strong impression of an act created in a hurry to appease the growing anger of the labour movement.

The situation is even dicier for workers in state government jobs; some governors suspect they might have to take out loans if they must pay the new wage.  If this happens, infrastructural development may suffer further neglect.  On a broader scale, the dependency ratio worsens as neither the federal nor state government successfully creates jobs to soak up the already swollen jobless population. Citizens will continue to fill in for local government as they provide their own electricity, water, and pay high fees for private schooling, healthcare, communication.

Most Nigerian workers watch their bills pile up before the wage arrives. So, if the trade unions are guilty of short-termism, it is doubtful if their strategy will even benefit their members in the short term. Typically, the announcement of an impending labour strike action causes panic-buying while greedy traders take advantage of the situation to hike prices. Because of this, a vicious cycle is created such that the minimum wage is shrunk at the tail of the circle. One economic analyst says the new minimum wage (plus removal of fuel subsidies) will hike inflation in the country.

Who wins?

Here’s what could happen. To pay the new wage, some states like Lagos will increase taxes or devise new taxes to increase their internally generated revenue. The ripple will hit the informal sector—the biggest employment sector in Nigeria. A market woman in Lagos, struggling to meet her tax responsibility in addition to other inflated costs, has no choice but to increase the price of tomato, fish, or garri. The same goes for commercial bus operators, and landlords. The load eventually falls on consumers, and that includes labour.  

Right now, it seems labour might lose out in negotiations with state governments; some states are considering pruning the size of their labour force in order to meet the new responsibility. Indeed, with a revenue sharing formula which gives the federal government over half of the nation’s income while the Sates and local governments get approximately a quarter and a fifth respectively, paying the new wage would be a daunting task for states like Gombe or Benue.

Living conditions cannot be improved simply by increasing wages. Using the national union, workers should fight the cankerworm that chews holes in the pockets where that wage – however small – ends up. Organized labour has a lot of leverage, and is selling it cheap on the minimum wage issue.

But they could really exert effective pressure for far-reaching change. This is not to say that Nigerian workers do not need a living wage. But there would be bigger and better rewards to be had if labour campaigned on a much broader range of governance issue. That way, they can ensure the government implements policies capable of improving the economy and sustaining a genuine living wage.

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