Balancing Economic Factors in Minimum Wage Policy Formulation
By Nigerians are currently facing a severe increase in the prices of goods and services, beginning in 2022 due to global supply chain issues, the Russia-Ukraine war, and domestic insecurity. This inflation was exacerbated by the removal of the fuel subsidy on May 29, 2023, leading to a 223% rise in petrol prices and the Naira’s devaluation to N1,500/$.
As a result, from May 2023 to May 2024, basic food items and transportation costs have more than doubled, according to the National Bureau of Statistics (NBS). The annual inflation rate rose to 33.95% in May 2024, the highest in 28 years, and food inflation increased to 40.66% from 23.65% in May 2023.
Decline in Purchasing Power
The Naira’s purchasing power has significantly diminished. For instance, N5000 could buy 11 yam tubers in May 2023 but only four in May 2024. Similarly, the quantity of imported rice that N5000 could buy dropped from 6.3kg to 2.5kg over the same period. This trend reflects a declining standard of living, especially for those relying on a single income.
Private Sector Challenges
The private sector has also suffered due to inflation, with top manufacturing firms reporting significant losses in 2023. Economist Bismarck Rewane emphasized the importance of considering businesses' ability to pay higher wages without risking recession.
State Government Revenue and Inflation
State and local governments face financial constraints due to inflation. Despite increased nominal revenues from the Federation Accounts Allocation Committee (FAAC) after fuel subsidy removal and Naira devaluation, the real value of these revenues has shrunk due to inflation. This limits states' capacity to address socio-economic challenges and implement wage increases.
Revenue Trends and Personnel Costs
From 2018 to 2022, personnel costs rose steadily, reaching N1.8 trillion in 2022, while recurrent revenue averaged N4.6 trillion, peaking at N6 trillion in 2022. The COVID-19 pandemic further strained fiscal space, increasing personnel expenditure to 41% of total recurrent revenue in 2020. States' efforts to alleviate the cost-of-living crisis, such as transport subsidies and investments in energy and food security, further limit their fiscal space.