Nigeria’s profound moment of truth

By Raphael Okunmuyide   |   25 November 2015   |   12:26 am  

Economy-spectacles-1NIGERIA’s profound moment of economic truth has, perhaps unwittingly, been declared by the majority of the Nigeria’s Governors’ Forum (NGF) from all the political parties: “we can no longer pay N18,000 minimum wage” (Vanguard 19/11/15), with the factual explanation: “the situation is no longer the same when we were asked to pay N18,000 minimum wage, when oil price was $126 (per barrel) and continued paying N18,000 minimum wage when the oil is $41 and the source of government expenditure is from oil, and we have not seen prospects in the oil industry in the near future.”

This profound truth is very important because it was not politically motivated! But this problem is not limited to the states as the federal and state governments have been issuing treasury bills and bonds to pay arrears of salaries and pensions and various “bail-out” schemes in about 27 insolvent states (75%) to increase the national debt level over N12 trillion. Certainly, this national spectre of financial delinquency is unsustainable.

The federal government’s supplementary budget for additional N466 billion and an increase in its debt scope from the budgeted N882.1 billion to N2.103 trillion to raise deficit financing from 1.09% to 2.219% of the 2015 bugdet is an escalated dimension of 91:9 recurrent/capital structure of the original 2015 budget which may end up as 99:1 as the servicing of debts alone will exceed N1 trillion ($ 5 billion) in 2015 rather than on investments on socio-economic projects that could have assured positive multiplier effects.

This situation is akin to the “debtor-debtor” (owing-to-owe) without concrete/feasible means of re-payment rather than the ideal “debtor-creditor” (owing-to-own) paradigm that late Professor Samuel Aluko decried unceasingly.

This problem started with OBJ’s “monetization” of civil servants’ emoluments. After his tenure, those “monetized” perks got smuggled into their emoluments to increase the federal budget’s capital/recurrent structure to 75:25 by 2011. The mounting of over 140% increase in the minimum wage on OBJ’s monetised base as key NLC’s tool for 2011 pre-election trade-off with GEJ, spiked it to its current estimated 99:1 level; in most States/LGs it is 100 recurrent!

This was what destroyed Nigeria’s economy as it not only prevented the building of new infrastructure, it also hampered the maintenance of the existing ones towards a virtual breakdown: schools, hospitals, roads, railways, airports, power, water, etc.

This has been a consistent cause of capital flight by previous investors as well as the disinterest of new foreign investors in the real sector of the economy as many of them prefer the easy-entry-easy-exit financial services and the oil and gas sectors which are infrastructure-neutral and tangential to the economy.

But the sustained investment in infrastructural development has consistently attracted foreign investors to Lagos State which now boasts of a $131 billion GDP or 60% of Nigeria’s non-oil GDP. But overall and elsewhere, this problem led to the collapse of many small-scale enterprises and the migration of the manufacturing facilities of the large firms to other countries (e.g Dunlop, Michelin) to cause an unemployment “epidemic” that has induced several horrible socio-economic crimes.

This is also why the government’s expectation of boosting revenue from IGR through taxes may become a mirage as many of the registered companies have collapsed, hence un-taxable in the short term.

It is even more sad because this writer foresaw this scenario, warned of its dangers in a virtually apocalyptic prediction of its socio-economic impact on the country and suggested an urgent start of repair of the damage caused by the approval of the N18,000 minimum wage in “the wages of corru-flation” (The Guardian, 11/04/11)

Clearly Nigeria, in its current state of economic miasma, has reached the point of economic “inflexion” which elementary “Calculus” advises thus: “when you reach a point of inflexion, differentiate from the first principles”! Hence, we should adopt the suggestion of the NGF by abolishing the N18,000 minimum wage, let every tier of government cut its coat according to its cloth and transfer wages and salaries to the concurrent legislative list. This is critically necessary for reducing the cost of governance effectively rather than merely retrenching workers with duplicative functions.

Apart from NGF’s valid reason of decline in public revenue, it was never correct economics to apply the same minimum wage in Lagos as for Ado-Ekiti or Oshogbo, Abuja as for Sokoto and Kaduna, Kano as for Kebbi and Makurdi and Port Harcourt as for Yenagoa and Abakaliki due to structural differences in the cost of living across the country.

Also it is illogical to require states that are in the lowest 10 states in the league of monthly allocations from the Federation Account to pay the same minimum wage with those on the top 10 as evidently shown by the fact that while one of the latter states could afford to “quarantine” over $500 million excess funds in just one identified bunker, all the states in the former category cannot execute meaningful capital projects for their development.

As an example, JKF who used the debt instrument to undertake a mixture of development and welfarism in Ekiti State was “voted out” because of the inadequacy of his “stomach infrastructure”! Also Osun State that was headily trapped in investing in capital development through heavy debt financing became the national object of political derision for its inability to meet the obligations of recurrent expenditure when the financial melt-down happened at the centre.

The consequence is that the citizens from the low-income, infrastructure-deficit states habitually migrate to states that struggle to develop their part of the country where they pay no taxes and into which their share of the Federation Account from the demographic component is never credited. Thus, they over-stretch the infrastructure in the states where they have migrated thereby triggering avoidable socio-political tension.

Also since a major reason for the phantom 140% increase in the minimum wage was the fact that the level of inflation was corruption-fuelled, that premise is no longer valid with the current administration’s comprehensive war on corruption through which all transactions are being conducted transparently in their correct economic values. This will make fresh negotiation and agreements on the minimum wage across the country in each tier of government more realistic than the current one-cap-fits-all imposition. It is not good economics to implement an aggressive social welfare policy that includes the payment of N5000 monthly stipends to the unemployed while retrenching more of the employed to join their ranks.

Also, the reduction of the minimum wage will encourage more small/medium-scale and large firms to increase their employment of the unemployed towards reducing the embarassing level of poverty because there are many job vacancies in many companies which are however unfilled because of the high national minimum wage.

Therefore, this profound moment of truth should be comprehensively utilised to re-structure the country towards achieving a more rapid and impactful change in Nigeria’s economic and socio-political spheres as a part of the necessary reforms promised during the last elections through the 2016 budget. Otherwise the speculated N8-trillion-size budget may become an expensive disappointment after a laborious effort. And, this is the time to pay “the wages of “corruflation”!
• Okunmuyide wrote from Lagos.

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