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New N30k Minimum Wage, Economic Growth and Reality of Job Losses

After 18 years, Nigeria now has a new national minimum wage of N30,000 for its least paid worker, but that comes with a mixture of an increased possibility of job loss and potential economic growth for the country.

President Muhammadu Buhari on Thursday signed the National Minimum Wage Bill into law, Ita Enang, senior special assistant to the president on National Assembly (Senate) matters, said in Abuja while briefing newsmen.

The presidential assent on the new National Minimum Wage Bill came after the approval of the House of Representatives on January 29 and the Senate on March 11, 2019.

With this development, which makes it compulsory for organisations employing more than 25 workers to pay workers a minimum of N30,000 monthly wage, focus now shifts to the implication of the 67 percent national wage hike on the Nigerian economy.

The Federal Government wage bill is expected to increase by N160 billion. This is a fringe of the Federal Government revenue, which has averaged N2 trillion in the past three years, even as concerns abound on the need for government to cut down its bloated civil service.

“The federal and state governments should critically assess whether they really need as many workers as they currently employ,” said Rafiq Raji, chief economist at Macroafricaintel Investment LLC.


Already, the Federal Government budgeted N4.04 trillion as recurrent expenditure in the proposed 2019 budget as against N2.03 trillion apportioned for capital expenditure, while debt servicing would take N2.14 trillion.

Increase in government personnel costs would translate to more pressures on revenue for the Nigerian economy, leaving the government with little or no choice than borrowing to meet its obligations and further widen its fiscal deficit.

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To further improve the fiscal health of the country, the Federal Government might consider taking some revenue actions like reducing petroleum subsidy, or could probably increase VAT rate from the current 5 percent to spur some improvement in the fiscal account and to fund the minimum wage, according to Abimbola Omotola, a macro and fixed-income analyst at Chapel Hill Denham.

If the new law is enforced unlike before, the private-sector players would also be required to pay at least N30,000 to their workers, a move that would mount more pressure on companies already snivelling over the country’s harsh operating environment evident in companies’ full-year 2018 financials.

That could force some of the private firms, who are the major employers of labour in the country, to cut down on the number of employees in a bid to comply with the new law. This could worsen the nation’s unemployment rate which rose to 23.1 percent as at the third quarter of 2018.


However, compliance done without necessarily reducing staff strength among these firms would mean an increase in aggregate demand and a boost to consumption in the economy which would ultimately spur economic growth.

“Having a higher minimum wage would be helpful in driving aggregate demand in the economy and that could translate to economic growth at least in the mean term,” Omotola said. “Higher consumption expenditure will provide a boost to near term growth.”

In dollar terms, Nigeria’s minimum wage is $98 (N306/USD) compared to Ghana’s $27, Egypt’s $41, Senegal’s $62, Kenya’s $133, and South Africa’s $176. This implies Nigeria would become less competitive among peers in Africa.

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Speaking during the briefing, Enang said the new law also authorises the “minister of Labour and Employment or any person nominated by the minister or any person designated by the minister in any ministry, department or agency to on your behalf take action in your name against such employer to recover the balance of your wages”.

“It also ensures and mandates National Salaries, Income and Wages Commission and the Minister or Labour, to be the chief and principal enforcers of the provisions of this law,” Enang said.

The law, he said, “applies to all agencies, persons and bodies throughout the Federal Republic of Nigeria”.

Source: by Tony Ailemen & Oluwasegun Olakoyenikan

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