As the controversy over the Minimum Wage fades, concerns over the financial strain on the federal, state, local government, and organized private sectors remain. Following extensive dialogue with the public and private sectors, including labour unions, President Bola Tinubu recently approved the new National Minimum Wage Act pegged at ₦70,000, a 133 percent increase from the previous ₦30,000. However, Sustainability is still a big concern as it is perceived that the increase in the new minimum wage might have a huge effect on Nigeria’s economy.
In view of the new wage, the House of Representatives has already approved a supplemental budget that increases the ₦6.2 trillion 2024 request and exposes a widening Revenue imbalance. This raises the budgetary total for 2024 from ₦28.7 trillion to ₦35.5 trillion. ₦3 trillion of the supplementary bill’s total is set aside for recurring expenses, and the remaining ₦3.2 trillion will be used for capital expenditure. Analysts caution that this increase in the budget would encourage further borrowing, which would worsen the national debt burden and cause debt service expenses to skyrocket later on.
Higher minimum wage could lead to job losses.
Also, the increase in wages is predicted to cause a bunch of economic unexpected events, such as higher inflation, a rise in the money supply, and even job losses. Demand-pull inflation, which occurs when rising Salaries boost purchasing power without simultaneously increasing economic output, could exacerbate inflationary pressures. The pay hike could undermine the Central Bank of Nigeria’s attempts to manage the money supply and reduce inflation. The higher minimum wage could result in job losses, especially for small and private organizations that may find it difficult to cover the additional costs of labour.
Potentially, it could lead to more increase in the Unemployment rate, which already skyrocketed in 2023. Numerous low-wage employees in small and medium-sized businesses may have major operational difficulties, which could have an effect on their long-term sustainability and ability to create jobs. The Head of Research at SBM Intelligence, Mr. Ikemesit Effiong, pointed out that raising the minimum wage won’t help in the long run; rather, it will only help temporarily. that it will only help temporarily. He said employees’ earning and purchasing power is essentially unchanged because Inflation frequently increases to keep up with the new minimum wage.
A rise in the money supply could worsen inflation.
Effiong explained that this shows that just increasing people’s purchasing power in an environment with rising inflation will only make it more complicated. As of June 2024, the total amount of money in circulation in Nigeria was ₦4.04 trillion, of which 93.6% was held outside of the banking sector. This represents a 56 percent growth year on year (y-o-y) from ₦2.6 trillion in July 2023. Commenting on this development, analysts at FBNQuest voiced concern that a rise in the money supply and currency in circulation could worsen inflation and reduce consumer purchasing power, especially for low-income people.
They also highlighted that while a rise in the amount of money in circulation could indicate better economic conditions and increased consumer spending, it also raises concerns about inflationary pressures. The CEO of the Centre for the Promotion of Private Enterprises (CPPE), Dr. Yusuf Muda, emphasizes that structural and macroeconomic issues may make the wage hike less effective. He underlines that, given the current economic strains that many businesses experience, it is imperative to strike a balance between Cost Of Living concerns and operational difficulties.
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Former Nigerian Maritime Administration and Safety Agency (NIMASA) Director-General Dakuku Peterside contends that small and medium-sized enterprises (SMEs), which are already having trouble keeping up with rising operating expenses, will be further strained by the pay increase. He issues a warning, saying that these companies may find it extremely difficult to absorb the increased wage costs, which could result in lower profitability and higher expenses for customers. Moreover, there are increasing worries that some states might not meet up with the new wage, considering reports that certain states are yet to start paying the previous ₦30,000 national minimum wage that was enacted in 2019.