AS the tensions over the minimal wage subside, issues stay concerning the burden of cost on the federal, state, and native governments, and the organised personal sector. Whereas states ought to discover methods to extend their IGR to fulfill the brand new wage invoice and fund capex, the three tiers of presidency ought to widen the tax internet and implement ease-of-doing enterprise insurance policies for the personal sector to keep away from huge job losses.
President Bola Tinubu signed the brand new minimal wage invoice into legislation on Monday. The legislation stipulates a nationwide minimal wage of N70,000 for staff and permits labour unions to renegotiate the wage each three years.
Nevertheless, the brand new wage legislation is at a dire price to employers. The Senate permitted a supplementary funds of N6.2 trillion to the 2024 Appropriation Act for the Federal Authorities to permit it to pay. The increment can also be to assist strategic infrastructural interventions. This elevated the funds from N28.7 trillion to N35.5 trillion.
Nevertheless, this suggests a rise within the current funds deficit, including N3 trillion to the preliminary N10 trillion deficit. Reliant on the windfall tax on banks’ foreign exchange beneficial properties, the minimal wage might irritate the untrammelled borrowing and debt servicing obligations.
Nigeria spent N7.8 trillion to service its money owed in 2023, a 121 per cent improve in comparison with N3.52 trillion in 2022. A report by PwC Nigeria stated the nation’s debt service might rise from N8.3 trillion in 2024 to N9.3 trillion in 2025 and N11.1 trillion in 2026. This underscores Nigeria’s credit standing outlook and undermines its debt servicing potential.
The Federal Authorities ought to urgently minimize the price of governance, deal with insecurity to revive public confidence and spend money on capital infrastructure to draw FDIs.
Sadly, the federal government is in a foul place. The dual insurance policies of eradicating petrol subsidies and floating the naira have provoked antagonistic financial penalties. Rising inflation and the excessive price of dwelling gave the federal government no selection however to extend the minimal wage by 133 per cent. Whereas staff await greater than double their salaries, inflation, at the moment at 34.19 per cent, stays an unquenchable monster.
Subsequently, sustainability stays a serious challenge. There are rising issues that states might default. The doubt is backed by a historical past of states not paying the earlier ones faithfully.
In keeping with BudgIT, 15 states have but to implement the N30,000 minimal wage because it was signed into legislation by the Muhammadu Buhari administration in 2019. In its 2023 States of States Report, the civic tech NGO famous that the IGR-to-GDP ratio of states was 1.01 per cent. It stated 17 states suffered a decline in IGR in 2022. Many states should not financially viable. BudgIT acknowledged {that a} new minimal regime might push many states out of business.
Throughout the Goodluck Jonathan administration, the minimal wage was set at N18,000. To pay, the state governors pressured the Federal Authorities to tamper with the Extra Crude Account.
To keep away from this, states should run as viable financial items. They need to discover avenues to spice up their IGRs, discard white elephants and frivolities, and give attention to helpful developmental tasks. They need to prioritise agriculture. Capital expenditure must be monitored for efficient implementation.
The enterprise surroundings stays unfavourable for the personal sector. Manufacturing is bedevilled by a number of issues, particularly vitality prices, an impoverished populace, and poor infrastructure. Firms might reply to the minimal wage improve by rightsizing their personnel. The federal government ought to incentivise the personal sector.