I think he is fast becoming my favorite Nigerian editorialist.

Anyway, enjoy:
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I laugh, of course, anytime I remember this story. A young man inherited his father’s troubled shoe business. He immediately reduced the prices of the shoes by half and doubled staff salaries. Needless to say, the business went under in no time. It is impossible to understand this business model! The more I think of the crisis the Nigerian government has got itself entangled with over the new national minimum wage, the more I remember this story. At a time advanced economies were making painful cuts to public expenditure, at a time Nigerian government officials were complaining about the “heavy burden” of “fuel subsidy”, we decided to increase the wage bill. Is there something the government knew that we didn’t know?

Now before you bring out the gun to shoot me, hear me out: I have no problem with increasing minimum wage. Nigerian workers are poorly paid. Their salaries can hardly settle their basic bills. I have no problem with increasing salaries of workers, especially the civil servants. It is my conviction that until we get a well-motivated civil service, governance will continue to suffer. All the policies and programmes being put in place will go nowhere if the human beings that will implement them from day-to-day are not motivated, committed and competent in the discharge of their duties. Poor pay cannot motivate them. So I need to make that fact very clear.

My grouse with the new minimum wage, however, is the economics of it. When the increase was announced, we were battling with dwindling oil production and, invariably, dwindling oil revenue. Without oil money, we are dead as a nation. So I kept asking myself: how can revenue be falling and expenditure be going up at the same time? How would the government fund it? Are they going to borrow? Are they going to print money? To make matters worse, the members of the National Assembly started doubling and tripling their own allowances about the same time. Based on what? Increased economic productivity or expected oil windfall? For me it was unbelievable. But politics prevailed.

I was doing a programme at the University of London last year when President Goodluck Jonathan announced the new wage. In the UK, the new coalition government had embarked on massive cuts to public expenditure, including even sensitive areas such as healthcare and security. I was asking myself: the UK economy is the world’s sixth largest and it is largely based on productivity. How come the UK government was cutting costs while my own country which produces next-to-nothing was increasing its own costs? Does it make sense? Had the Nigerian government done its calculations before embarking on this project? Did the officials sit down with a calculator before jumping into making a promise that they now say is very difficult for them to keep?

Speaking at the weekend, the governor of Niger State, Dr. Mu’azu Babangida Aliyu, said his state collects an average of N2.2 billion monthly as statutory allocation. It has over 30,000 workers. The wage bill is N1.6 billion and government still has to implement projects in its 25 local government to keep the people happy. He asked: “In a situation where about N1.6 billion is used to pay salaries – while a paltry sum of N600 million is left for capital projects and payment of overhead cost to MDAs – the payment of the new wage will further task the state to its limits.” At what stage did he realise it? Where were the governors when the National Assembly was passing the new bill?

I have more questions and observations to make before I reach my conclusions today. How was the N18,000 national minimum wage agreed upon? Did the governors, lawmakers and the president sit down to calculate how much it would cost? Did they compare the cost with the revenue profile of each tier of government? How was the government planning to fund it? In a fiscal state—a state that is run like proper business—these questions would have been asked and answered satisfactorily before an announcement was made to the public. In advanced countries, when politicians are making promises during campaigns, they tell you how they are going to fund their proposed projects—by raising taxes in certain categories or closing down certain expenditure centres, or some other measures. Many a times I hear Nigerian politicians promise free education, free healthcare, free lipstick and all what not and I ask myself: have these guys counted the cost? The truth is that because Nigeria depends on resource rents from oil, we don’t have to think hard to look for money. We simply hope oil will continue to sell above $100 per barrel so that government expenditure can keep ballooning.

For instance, I would expect a governorship contestant to say: “I will give university scholarships to 1000 students every year. It will cost N1 billion. I will raise the money by reducing the number of vehicles in the fleet or by cutting down on phone bills.” Now that would make sense. But to just promise 1000 scholarships in the hope that crude oil price would go up or that federal allocation would increase is nothing but nonsense. It is even very wrong to base increasing wage bill on an oil windfall. In my lifetime, I have seen crude oil sold for $8! It has also sold for $147! From the height of $147 in July 2008, it was selling for $40 in 2009. If oil price had not bounced back, we would have been in a total mess by now because we had piled up public expenditure in response to high crude oil prices.

Having said this, I would like to move to the question: what is the way forward for the workers and the government? I have been hearing many suggestions which I would like to summarise thus. One, the governors are being advised not to honour the agreement. Some are even raising the issue of “true federalism”, that all states should not be compelled to pay the same thing. I think we are making a mistake here. National minimum wage has nothing to do with federalism—it is a universal practice. The U.S.—our federalism poster boy—has a minimum national wage of $7.25 per hour. That is the minimum. States are allowed to pay above that benchmark. In fact, the state of Washington allows for a minimum of $8.67. It is a universal practice. I would not advise the governors to jettison the agreement. That would create more crises than it would resolve.

A second option is that states should start sacking workers so that they can manage to pay within the resources they have. If you pay 30,000 workers N1 billion under the old package, you can pay 15,000 workers the same N1 billion under the new package. Nothing gained, nothing lost. Well, creating unemployment, for me, will not solve the problem. You’ve only transferred the problem to another part of the economy and the ripple effects may be worse than envisaged. I must quickly add, however, that the civil service is certainly bloated. A department with two cars will have 20 drivers! That’s nonsense. I support a fit, trim civil service structure that will be efficient. Deadwoods need to be flushed out. If you have ever had anything to do in a government office, you would understand my point. Even the toilet keys cannot be found, despite 25 cleaners being on the payroll! However, it would be wrong to tie wage increase to “right-sizing” (the euphemism for retrenchment). I will never support that. Any restructuring must take place in a different context at a different time, certainly not in the heat of this crisis.

Another option, which is my preferred choice, is that governors should cut down on their ridiculous expenses. And, goodness, there are zillions of them! Contracts are senselessly inflated, many of them haphazardly executed; security votes run into billions (despite the huge votes for security agencies which are never accounted for); the population of special assistants and special advisers and senior special advisers must dwindle; foreign trips and chartering of aircraft must be sliced considerably; jumbo allowances must be sacrificed; and loopholes and leakages in state finances must be plugged. In addition, governors must drive up non-oil revenue by strengthening the internal revenue drive. We are living in a fool’s paradise where we think we don’t have to pay for anything. Just bring the oil money from Abuja and share. We don’t want to pay NEPA bills, water rate, toll, nothing. That is not how it is done in the countries we admire.

My conclusion: governors must pay the new minimum wage by being creative.
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(see the rest here: http://www.thisdaylive.com/articles/the-new-minimum-wage-fiasco/95572/)

Nice article.

SK has been my favourite columnist for at least 2 years now. Sharing the same views on many national issues, it was only natural that we became friends. SK is my analyst of choice today and the first person I discuss political developments with through our regular BBM exchange.

I gbadun his analyses.

his analysis is good

[b]I got a few scud missiles from my Christian brothers and sisters last week over what they called my support for Islamic banking. Some say I was ill-informed, completely ignorant about what is happening. Their argument is that the CBN governor, Malam Sanusi Lamido Sanusi, has gone too far by setting up a Sharia-regulatory department for the sole purpose of Islamic banking, which they argue in illegal. One of the respondents said the same rules should be applied to all non-interest banks and Islamic ones shouldn’t be subjected to a different regulatory organ. This, they argue, offends the laws regulating banking and finance in Nigeria. While I respect their arguments, my position is that we should not throw away the baby with the bath water. Christians can set up their own banks and provide non-interest loans. That would make the whole system more exciting and competitive. As for Sanusi breaching the law, well, that must be sorted out in the courts. My interest is that small and medium scale businesses need soft loans and cheap funds to grow—and whoever can provide that must be encouraged. Shikena![/b]

abi

That part I don't agree with. It doesn't make sense, if you think about it.

Interesting article!

ekt_bear:

That part I don't agree with. It doesn't make sense, if you think about it.

Christians can set up their own non-interest banking. To see which is better if it is the Islamic banking and their rules or the Christian banking and their rules. All we should really be consided about is if small and medium scale businesses can get cheap loans of little or no interest issued by the bank.

this is very good for business and the economy if u ask me