On Thursday, April 18, President Muhammadu Buhari finally signed into law the mew minimum wage law which makes it compulsory for organisations employing more than 25 workers to pay workers a minimum of N30, 000 monthly wage.
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.
Implementation of the new salary structure for federal civil servants alone will cost the federal government N160bn, and it’s going to infringe on government revenue, which has averaged N2 trillion in the past three years.
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.
ALSO READ: Nigeria workers beg Buhari on minimum wage
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.
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.
“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.