Small business organisations in Nigeria have announced that the newly approved ₦70,000 Minimum Wage by President Bola Tinubu is unaffordable for Small and Medium Enterprises nationwide. Tinubu also promised to reassess the national minimum wage Legislation every three years. Senator Godswill Akpabio, the President of the Senate, confirmed at the Minimum Wage Act (Amendment) Bill signing event that the updated national minimum wage is universally applicable across all sectors, encompassing the Federal Government, states, Local Governments, private businesses, and individual employers alike.
According to the National Bureau of Statistics, 39,654,385 micro, small, and medium enterprises were operating in Nigeria by December 2020, compared to 41,543,028 in 2017. The 2023 Social Statistics Report from the same bureau revealed a notable decrease in small-scale industrialists in Nigeria in the last two years, primarily as a result of economic difficulties. The report revealed a significant 45% decline in the amount of small-scale entrepreneurs in Nigeria, dropping from 246,200 in 2020 to 170,098 in 2022. This decrease poses a threat to Nigeria’s ambition of reaching a trillion-dollar economy, as small-scale businesses play a crucial role in driving economic development.
Escalating production costs puts them in danger of shutting down.
Operators have warned that many small businesses are in danger of shutting down, leading to potential layoffs. This is due to the challenge of meeting the new minimum wage in the current unfriendly economic climate across the country. Segun Kuti-George, the National Vice President of the Nigerian Association of Small-Scale Industrialists, emphasised the challenges business owners face due to the escalating production costs. This issue is particularly critical as entrepreneurs strive to minimise expenses to stay afloat. Labor unions have pushed for an increase in the minimum wage for a while now, and while they support the idea, however, the feasibility for small businesses remains a concern.
An increase in costs for small businesses can result in downsizing staff and the closure of companies, ultimately causing a spike in Unemployment rates. The burden of increased expenses is especially heavy for small businesses, with raw material costs rising by over 100 percent in the past year and a half. Kuti-George explained that keeping product prices consistent across the board is not an option because of competing market options. Increasing Salaries could eat into profits, possibly resulting in deficits, as numerous companies are currently exploring avenues to lower expenses.
Businesses may cut staff due to the inability to meet the requirement.
Large companies and government agencies are able to benefit from the new minimum wage. However, small businesses are finding it difficult to implement due to the current economic conditions. Alhaji Moshood Lawal from the Small and Medium Enterprise Development Agency of Nigeria believes that expecting small businesses to pay the new minimum wage is simply not feasible. He also highlighted the ongoing discussion about introducing either the minimum wage or fixed salary for government employees, emphasising that imposing a minimum wage on small enterprises would pose a challenge.
He explained that they are currently grappling with a tough choice: either cut staff due to the inability to pay ₦70,000 or implement automation to decrease reliance on human labor in order to stay afloat. Gbenga Komolafe, General Secretary of the Federation of Informal Workers Organisation of Nigeria, highlighted the issue of Private Sector operators failing to meet the requirements. He emphasised the importance of Social Protection programs in other countries to tackle this issue. He mentioned that in certain Western countries, the government intervenes to make up for any shortfall when employers pay less than the minimum wage.
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Despite being a part of the organised private sector, small businesses affiliated with the Nigeria Association of Small and Medium Enterprises were actively involved in minimum wage negotiations. The Deputy Executive, Samson Gbadamosi, revealed that initially, the OPS suggested a minimum wage of ₦66,000. However, after discussions with labor unions and the Federal Government, a new minimum wage of ₦70,000 was eventually agreed upon. The OPS’s active role in negotiating led to their backing of the final number. As a result, small businesses are expected to follow suit and adopt the newly set minimum wage.