The debate on the removal of fuel subsidies should go beyond rhetoric on the pages of newspapers and WhatsApp groups. Personally, I’m concerned about the salary review that the President has allegedly proposed as part of the palliatives to the fuel subsidy removal. To be honest, this will only worsen Nigeria’s current precarious fiscal situation. Any wage increase will swallow up any “savings” that may result from the removal of subsidies and even lead to higher inflation and it’s attendant socioeconomic consequences.
This is compounded by the fact that over 70% of our annual budget is spent on recurring costs, including personnel and overhead costs. Consequently, 70% of Nigeria’s total budget goes to less than 5% of the country’s population, which are employed by the government. In addition, over 60% of capital expenditures are wasted through inefficiency and corruption by the same less than 5% of the population. The implication of this is that over 88% of Nigeria’s annual budget is spent (squandered) by 5% of the total population (including political appointees).
Moreover, labour productivity is virtually nil, with an average of 1.14%, compared to Egypt’s average of 5.85%, 4.74% in South Africa and 4.15% in Ghana. While it is acceptable for Nigerians to be hard working people, it is important to determine the extent to which the work is productive. Every effort placed in an activity that does not produce anything is futile. It is on this background that many have questioned the productivity of Nigeria’s working population. Over the years, Nigeria has failed to adequately compensate for the large number of workers when viewed in terms of labour productivity index and size of Nigerian GDP. Labour productivity in Nigeria is three times below the average of countries with economies similar in size to Nigeria.
Over the years, salary increases in Nigeria have been based on political correctness and labour union pressure, not on productivity. Worse still, no one pays attention to the real implications of such a political announcement for the entire national and sub-national economy, including the ability to pay problem. How do you expect a worker to be productive when his pay is not tied to performance or productivity? No wonder you will find mini-stores operated by employees of establishments within their respective offices. Ethnic and religious differences make it easier for “rogues” posing as staff to continue to plunder and share our shared resources.
Almost half of Nigeria’s output is driven by low-skilled employment and underemployment, with over 84% of Nigeria’s labour force suffering from a significant skills gap. Furthermore, only about 11% of the Nigerian labour force has post-secondary education. Unfortunately, government investment in the social sector continues to shrink. The government has paid no concrete attention to the educational sector in terms of quality and access. As a country, we have continued to confront an increasing mismatch between skills and labour market needs. This, without a doubt, has contributed to low wage and low skilled jobs.
In view of the above, it is important that instead of raising the minimum wage, investment in the social sectors, human capital and infrastructure development become a priority. They are important for creating the right and supportive business environment. The Nigerian labour union should therefore focus on getting the government to make the right investments to attract real investors. This could be done through dialogue or industrial action, not by the threat of a strike over the removal of the fuel subsidy.
Making Nigeria the destination of investment would ultimately lead to an increase in the demand for labour, resulting in higher wages. This is true if the demand for labour is greater than the supply of labour. Furthermore, as a policy, the government should determine wage increases on the basis of productivity and performance and not as a political tool.
Dr. Chiwuike Uba, Development Economist and Chairman of the Board, Amaka Chiwuike-Uba Foundation (ACUF) 08033095266
