The Managing Director of Financial Derivatives Company, FDC, Mr. Bismarck Rewane, has urged the Nigerian Labour Congress, NLC, to reconsider its stance on benchmarking the minimum wage demand on dollar exchange rate, saying that it would result in massive job layoffs, especially among the private sector operators, who are the major employers of labour.
He spoke at the 2024 Annual Vanguard Economic Discourse with the theme: âReform in an era of Global Economic Uncertainty: Whither Nigeriaâ, in Lagos.
He argued that the private sector operators are currently confronted with several other macroeconomic challenges that erode their revenue, saying that they can only pay the minimum wage from the revenue.
Rewane also said for efficient price reforms to be achieved, it must be preceded by institutional reforms that would ensure that the right set of people are emplaced in positions of authority.
According to him, the naira would also continue to depreciate in value if the country does not earn dollars via export.
Minimum Wage
âIn 2019, the original proposal that we met, when Buhari called us, I could recall, was N18,000, and the discussion was around N24,000. I think we moved it to N30,000 after all negotiations.
âWhen we came up, he said, I donât want any layoffs, I donât want any inflation, I donât want this, and I donât want that. But what do you want? That was not there.
In any case, we were able to resolve the issue. The data is very clear on what we did, N30,000 was the minimum wage, which covers 10% more than N30,000 that the civil servants got.
âThe equivalent at that time was about $75. So, for any other person, if you are on N18,000, you get N30,000. If you are a permanent secretary, whatever it is, you get N10,000 more.
And the data is here. Inflation in 2019 was 11.4%. Inflation in 2020, the year after, came down to 6%. So, you can see that even though there was a wage review, which went from N18,000 to N30,000, inflation actually declined to 6 percent.
So, it was well managed, anticipated, and the discussion was very thorough and it happened in the month of the election. The president signed on April 18th.
âSo, if you now dollarise the minimum wage, because the inflation has already been factored in the exchange rate, you dollarise the income.
âAnd now, if you use the dollar value, you must also then use U.S. inflation. You cannot use the dollar value and then use the Nigeria inflation because that means that I am paying you in dollars.
âSo you now use U.S. inflation, which is at 3.4 per cent now, and you take all the weight out of it. Let us say the U.S. inflation from 2019 to now went up to about 9 per cent. So letâs say everything put together was 15%, so, if you take the dollar value and add 15% to that, and then bring it back, you will find that there is enough room for you to come up with a midpoint.â
âSpeaking about minimum wage, productivity in the US and our productivity in Nigeria are two different things. So thatâs one.
âTwo, the national minimum wage is a law that affects both the private sector and the public sector. It is a policy; it is not an economic plan, not a public plan. The governmentâs contribution to the GDP is about 10 per cent. The private sector, and the employers, also have to pay the minimum wage.
âThey can only pay the minimum wage from the revenue they generate and you know the situation in this country. And they donât want a situation which would lead to a recession. So, what Iâm saying is that you negotiate the minimum wage bearing in mind that it is not government and government workers.
âThe private sector is also in. Look at the losses they have been declaring and these companies that are going to borrow money at a higher interest rate are still going to pay a higher minimum wage.
âAnd so, we are very concerned about the growth of our investment.â
Price reforms
â If you donât do institutional reform, price reform will not get you anywhere because institutional reform is what prevents corruption. Institutional reform is what means that the right people are in the right places. No, thatâs why we have this discourse. You know, the discourse isâŚ, the question here is, âWhither Nigeriaâ. To do policy reform and price reform without institutional reform is the risk to lobby. You must reform the institutions, including the Central Bank and all these other things, which, if you donât do that, you can take credit or not tomorrow if you are going away.
Stabilising the Naira
âOne of the items is market structure and thereâs supply and demand. These are two different things. Even if the market structure is very efficient, without the market, the market structure is not efficient. If thereâs no supply, the price will be a lot lower. So, thereâs a fundamental issue.
âIf Nigeria doesnât have the dollars, itâs done. Period. Second thing is the structure. The Central Bank of Nigeria is not resistant to corruption. They are licensing Bureau De Changes for themselves and the central bank dwells on inconsistencies and contradictions.
âSo one, I think, there should be an attempt to sanitize the market, change the structure, where thereâs fundamental issues. Secondly, thereâs a big difference between if you are fighting terrorism and if you are against the value of the currency.
âSo, my suggestion is that there should be communication between the operators, the policy makers and the regulators. Two, that the structure of the markets, the more the players, the more efficient the markets.
Ăgain, if there is no supply, you can have the best structure in the world, the currency wouldnât appreciate. If there is supply, because you earn the money from oil, from invisible services and all of that, you should earn that. So, currency would appreciate.
Exchange Rate Volatility
âSo, currency volatility is a natural part of markets. Look at other countries, look at the Ghanaian cities, look at the South African lands. If the central bank cannot print dollars, even if they would like to, actually they cannot, the only thing they can do is to earn the dollar and have an efficient transparent market.
âIn which case, you have an option. If thereâs a bidding system, out of that option, the price is covered, you will find a good price. Intervening, defending and all of that are only temporary measures.
âThe market will buy the dollar. Nobody goes to buy the price of yam, nobody goes to buy the price of garry, or beans and all of that. Foreign exchange is the product which is in the market.
âBefore Brexit, the pound dollar rate was at 1.6, 1.5. Now, after Brexit and mistrust, it is going to almost one pound to one dollar. So what?
âThe currency will continue to oscillate. But what you do as a central bank is to intervene in it to bring some kind of stability.
âBut not losing focus on the fundamentals that make up the currency which is the balance of the trade, your receipts, your terms of trade. And what I mean is, here, our oil, gas, cocoa and other exports. If you are not exporting, sorry. You must have that. And the currency will continue to lose valueâ.