- Govs, State NLC clash on uniform payment
By UCHE CHRIS
Most Nigerians who thought that the last has been heard of the minimum wage controversy with the agreement between government and labour after a long drawn negotiation since the legislation was passed in April may be huge disappointed as fresh crisis is brewing at the state level waiting to explode. The situation reopens all the troubling issues affecting the federal system currently being operated where everything is decided at the centre.
State chapters of NLC are insisting that the agreement with the federal government should implemented by all the states of the federation contrary to its terms which mandated state chapters to negotiate with the governments on basis of capacity and ability to pay. They believe that would be discriminatory to state workers as they all buy from the same market.
The federal government had been locked in negotiations with the NLC which had threatened industrial action repeated sine the disagreement over the consequential adjustment of the minimum wage across board. Labour had initially asked for 50 percent adjustment which government rejected insisting that it would defeat the purposed and create huge cost burden for government. It however offered nine percent.
After this prolonged stand-off, the parties two week ago agreed on a graduated adjustment of 28 percent for GL 7 and 8; 24 percent to GL 9-14, and 22 percent for GL 15 and above. Last week the government directed that payment should be concluded before the end of December 2019 to ensure that it is not carried forward into the new financial year.
Although the agreement directed the sate chapters of the union to enter into negotiations with their governments on the modality of what they can pay, the chairmen of the chapters after a meeting in Enugu, following the agreement, rejected that clause in the agreement insisting on uniform application and payment of the consequential adjustments agreed to by the federal government. They threatened dire consequences if the state governments try to buck from the agreement.
But last week, the state governors, after their meeting under the aegis of Governor Forum, dismissed the threat from the unions because the federal government has not constitutional powers to impose any wage standard on them. Chairman of the Forum and Ekiti state governor, Dr. Kayode Fayemi, made a distinction between national minimum wage and general minimum wage.
According to him what they all agreed on in the tripartite negotiations was a national minimum wage of N30,000, which they all agreed to pay. The issue of consequential adjustments is yet to be decided and only each state can determine based on their capacity and ability to pay.
“The states accepted the minimum wage, but the consequential adjustments will depend on each state; the states were part of the tripartite negotiations and recognized the national minimum wage. The central government has reached agreement with labour but it should not be applied to the states.
“Governors will comply with the N30,000 minimum wage, they should negotiate with their unions on other implementation issues. The best states can do is to stick to the agreement already reached at the tripartite meetings.”, he said while addressing the press after the meeting with other governors in audience.
It was learnt that the governors, beyond their financial challenging may have this hard stance to spite the federal government for reneging on the terms of the budget support loans granted them by the Central Bank of Nigeria, CBN, which envisaged a 20 year repayment tenor. Faced with acute revenue shortage, the federal government had leaned heavily on the state governors to refund the over N500 billion.
Minister of Finance, Mrs. Zainab Ahmed, had said then that each of the 36 state except Lagos, will pay about N17 billion, which would be deducted at source from their Federal Account Allocations. The governors had in September after the Economic Council meeting insisted reconciliation of the debt and amount repayable before deductions begin. But to their chagrin, the federal enforced the deductions during the last FAAC meeting.
Already the states are reeling under heavy debt burden and the minimum wage which the initially resisted may be the last straw that will break the camel back. The new minimum wage leaves most states in financial jeopardy as only three are reportedly capable to pay this amount. Already most of the states are in arrears of salaries and pensions and the new minimum wage is bound to make this situation worse.
Recent figures by the Debt Management Office (DMO) shows that debt owed by state governments and the FCT as at March 31, 2019 stood at N3.97 trillion, with Lagos State which has N542 billion debt leading the pack. Others states with substantial domestic debts include Rivers, N225bn; Akwa Ibom, N199bn; FCT, N163bn; Osun, N147bn; Kano, N121bn; Ekiti, N118bn; Imo, N97bn; Adamawa, N97bn; Benue, N 96bn and Kogi, N96bn. Similarly, external debt profile of the states and FCT as at December 31, 2018 was N1.52trillion. Again, Lagos leads with N513bn, followed by Edo N99.4bn, Kaduna N81.1bn, Cross River N67.9bn, Bauchi N45.4bn, Enugu N45bn, Anambra N38.5bn, Ekiti N38.8bn; Oyo N37.7bn, Ogun N37.1bn, Osun N35.4bn and Abia N35.4bn.
But even worse, the coming on board of new state governments in various states on May 29th has revealed further debts not yet captured by the DMO. Evidence from reports of transition committees showed that a number of states have more than doubled their debt profiles within the last four years, usually, with little to show in terms of infrastructure.
DMO data covered debts incurred by states through official borrowings such as multilateral and bilateral foreign and local financial institutions, investment securities like bonds and treasury bills, but not debts incurred using local contractors, suppliers, and consultants, which from evidence is a handful.
Reports of transition committees in Lagos, Borno, Imo, Yobe, Zamfara, Bauchi, Gombe, Ogun, Kwara Adamawa, Nasarawa and Oyo, where there were change of guards in government, show that among the states, domestic debt stock rose by nearly 200 percent, from N412.98bn in 2011 to N1.37tr as at May 2019.
Within the same period, the states also increased external debt stock by 81 percent from $1.75bn to $2.16bn. Five former governors: Abiola Ajimobi of Oyo, Abdulaziz Yari of Zamfara, Ibrahim Dakwambo of Gombe, Jibrila Bindow of Adamawa and Mohammed Abubakar of Bauchi were reported to have left behind over N612bn in debts.
Particularly, Zamfara State transition committee said Yari left behind a debt of N251bn. On the other hand, Dankwabo left behind N110bn in debts, Bindow N115bn and Abubakar N136bn.
Recently, Oyo State Governor Seyi Makinde disclosed that Ajimobi left behind over N150bn in debts. Interestingly, these debts were accumulated even while the governments were getting substantial amounts as Paris Club refund, and some good sums as IGR and from Federal Allocation.
For instance, while the Lagos’ domestic debt rose from N218bn in 2015 to N542bn in 2018 and its foreign debt stock also rose from $1.21bn to $1.43bn during the same period under review, the state government generated N1.29trillion in IGR with N268.2bn generated in 2015, N302.4bn in 2016, N333.9bn in 2017 and N382.18bn in 2018. Within the period, the state also got over N400bn as FAAC allocation. Regardless, its debt has continued to spiral, with not much to be seen in terms of infrastructure.
But Lagos stands out as the richest state in the country, with revenue constituting 13 percent of of the combined total revenue of all the other states, and more than those of three geopolitical zones individually.
A recent report by the Nigeria Extractive Industries Transparency Initiative (NEITI) showed that while Lagos got N501.2bn as revenue from both IGR and FAAC in 2018, the whole of South East comprising Abia, Anambra, Ebonyi, Enugu and Imo got N340.1bn; North East comprising Gombe, Borno, Yobe, Adamawa, Bauchi and Taraba got N351.5bn; North Central comprising Benue, Kogi, Plateau, Niger, Nasarawa and Kwara got N378.7bn.
Lagos’s revenue for the year was 15 times more than that of Osun, which at N33.2bn, had the lowest revenue of all the states. But while Lagos boasts of this comparatively robust revenue base, it rather surprising that it has entered into a debt crisis of sorts. With annual revenue of N501bn, the state cannot pay off either of its domestic or external debt if it were to use its entire annual revenue to pay debts.
However, the state is still the shining light. Osun with annual revenue of N33.2bn has domestic debt profile of N147bn and external debt profile of N37bn, which is closer to the situation in most of the states. Within the past four years, many of the states had to rely on Paris Club refund to be able to meet their salary obligations, and even with it, states like Benue, Kogi, Imo, Osun, Abia, and 10 other states have not been able to meet salary obligations.
For most of the states, both IGR and FAAC allocation combined cannot meet their salary obligations. For instance, figure from the National Bureau of Statistics (NBC) showed that in 2016, 30 states generated a total of N516bn in revenue, but spent N1.4trn on wages. The balance of course, came from borrowing and such interventions as Paris Club refund.
Few months ago, the Federal Government paid the final tranche of the Paris Club refund, meaning that henceforth, states won’t have funds to fall back on. And with many states already reaching the limits of their capacity to borrow, analysts say these are troubling times as the states would no longer be able to meet basic obligations going forward.
“Most of these states are insolvent. Unfortunately, a state cannot be bankrupt; otherwise I would have used the word bankrupt. If they were corporate organizations, I would have said they are bankrupt,” said Dr. Vincent Nwani, investment and business analyst.
“They are insolvent to a level where they cannot easily meet their short term basic financial obligations. At some point, these states may not be able to borrow again. By the time rating agencies begin to rate them, they may no longer be able to borrow.
“And that’s where we are going. It’s already happening. Some of the state governments that were able to access loans last year were asked to go and get federal government guarantee. Getting federal government guarantee is not just going to the executive; it has to come from National Assembly. It happened with Kaduna, and even with Lagos – as rich as the state is, it is still the most indebted State in the country.”
Yobe State recorded a total IGR of N23.94bn from 2011 to 2018; meanwhile, the states monthly wage bill is about N1.3bn, meaning that its IGR for seven years will be unable to meet its wage bill for two years. Borno State recorded a total IGR of N27.32bn in the last eight years, within which period, its domestic debt stock rose from N1.68bn to N68.38bn. Meanwhile, the state got N263.2bn FAAC allocations from 2013 to 2017.
Imo State’s IGR from 2011 to 2018 stood at N61.32bn, within the period, its domestic debt rose from N25.42bn to N98.78bn, with external debt rising from $50.28m $59.52m. The state’s FAAC allocation between 2013 and 2017 is N226.4bn.
Domestic debt stock of Ogun, Oyo and Kwara States rose to N98.72bn, N91.52bn and N59.14bn respectively as at December 31, 2018, from N30.14bn, N4.81bn and N25.25bn respectively. During the same period, the external debts rose respectively to $103.26m, $104.99m and $48m, from $94.58m, $78.09m and $43.99m.
Meanwhile, the total IGRs of Ogun, Oyo and Kwara States stood at N562.86bn, N136.75bn and N113.55bn from 2011 to 2018, meaning that revenues for the bulk of the states cannot meet basic obligations, while debt are accumulating and there is the talk of minimum wage raise from N18,000 to N30,000.
For Chief Emma Nwosu, former MD, ACB, the states no longer have much option.
“They (state governments) maintain fleets of cars, hundreds of assistants and all those have nothing to do. All that has to stop,” Nwosu said. “There is a lot of waste in government. I don’t know what they are still doing with security vote that is so opaque. We must begin to do things right if we must survive.”
But it’s not just the states. The federal government itself is heading towards another debt trap. A DMO report fortnight ago showed that within three months – between December 31, 2018 and March 31, 2019 – the country borrowed N560bn. And within four years, the country’s debt total – state and federal – has gone from about $11trillion to $25trillion. This, according DMO comprise N17trillion for domestic debt and N7.8trilllion for external.
“The issue of debt over-hang and debt crisis is not just a sub-national, it’s a national crisis,” Nwani said. “Over the last four years, Nigeria has doubled its debt from N11.8trillion to about N25trillion. This is a very big challenge.”
Nwani noted that the sad part is not the borrowing, but what the borrowed money is spent on. He regretted that there hasn’t been a corresponding relationship between borrowing and infrastructure development.
“It doesn’t correspond and that’s another worry. It is not really bad for government to borrow, but when government borrows, it is important to use the funds to finance projects that will benefit future generations who will pay back the loan,” he said.
“Unfortunately we borrow to pay medical expenses and pay salaries. That’s the sad thing. We are not borrowing to invest, we are borrowing to consume and we don’t even consume them well. Most still go back to where we borrowed them from,” he said.
Nigeria’s revenue sharing structure is about to undergo major changes following the report of the Revenue Sources committee, headed by Mr. Bismarck Rewane, for the implementation of the new minimum wage of N30,000. It was learnt that the federal government has accepted to cede certain percentage of its revenue allocation share to the states to enable them pay the new minimum wage.
State governors under the aegis of Governors’ Forum had mounted stiff opposition to the N30,000 approved by the National Assembly and accepted the federal government insisting that they could not pay; instead the proposed N24,000. They had also proposed a change in the revenue allocation formula if they were to pay.
Most states governments in the past four years had relied on budget bailout from the Central Bank of Nigeria, and budget support from the Paris Club debt relief refund to meet statutory salaries and pensions. The new minimum wage is expected to raise their personnel cost to as much as 68 percent, according to experts.
The Rewane committee had recommended an 85 percent Value Added Tax, VAT, revenue for states not more than five percent reduction in federal allocation, and access to forex by states at the official window rate of N305 per dollar. It was learnt that government has already proposed amendment to the existing revenue formula which will be sent to the National Assembly for enactment into law.
State governments were prevailed on to accept the new minimum wage on the promise of a review of the existing revenue allocation formula to increase their share. Government had set up the Bismarck Rewane committee for the sources of revenue to ensure the implementation of the new wage policy, but labour appears to have thrown spanners in the work with their demand for a higher rate of “Consequential Adjustments” across the other grade levels to reflect the new minimum wage.
The federal government has attributed the delay in the full implementation of the N30,000 new minimum wage to the unrealistic demand of labour unions for a 68 percent “Consequential Adjustment” across the board.
The chairman of the National Salaries, Income and Wages Commission, NSIWC, Chief Richad Egbule, said last week that there is still no end in sight for the implementation unless labour shows understanding. Egbule said that the current demand by the labour unions would raise the total wage bills too high and that was why government could not accept their proposed salary adjustments.
“Labour is asking for consequential adjustments and government in its wisdom had made budgetary provision for an adjustment of N10,000 across board for th ose already earning above N30,000 per month. However, the unions have refused this offer, saying that because the increase in minimum wage from N18000 to N30000 was 66 percent, therefore, they want a 66 percent increment across board.
“We told them the increase in minimum wage was not effect on the basis on percent but as a result of the consideration of the economic conditions and other factors including the ability to pay”, he said.
However, we said that if they want adjustments in percentage terms then we will use a percentage that when applied will not exceed what is provided for in the budget.
“The computation based on percentage which government had given to labour was 9.5 percent from levels 7 to 14, including level 1-6 of those salary structures that did not benefit from minimum wage; and then five percent from level 15 to 17. Labour contended that the offer and proposed 30 percent increase for level 7 to 14, and 25 percent for Level 15 to 17.
“One point we keep repeating is this; it will be unfair that because you gave the person earning minimum wage N12000, you give a Level 17 officer N100,000 if you apply 25 percent”, he said.
It was learnt that the committee justified the minimum wage because of the growing inequality in the country, which has serious social consequences for society in terms of the rising crime rate, and the need to boost demand which will encourage manufacturers to raise capacity utilisation and production, as well as generate more employment.
“The poor can’t sleep because they are hungry; and the rich can’t sleep because the poor are awake”, Mr. Rewane said recently in a programme.
However, analysts believe that tweaking the revenue formula could be a back door channel of achieving fiscal federalism. This point was made by Barr. Wale Ogunade a human rights activist and convener of Electoral Reform.
“Obviously, it is what we have been advocating; the federal government cannot control everything and achieve much result. It is not right for the government to control most of the resources because development takes place in the states and local governments. What is happening is inevitable because to continue the way we are going will lead to a break down in governance. Indeed, you can’t pay N30000 minimum wage without doing something about what goes to the states to be able to pay workers salaries.
“Paying workers’ salary is important because it affects the economy, because when you pay workers it stimulates demands and helps to improve the economy as manufacturers will be motivated to engage more people thereby creating employment.
“It is also important that the adjustment be across board; Labour is right to insist on it because how can you pay some people are not the others. Everybody must be motivated to put in their best; a worker whatever their level should be able to afford the basic things of life for them to be able to make the needed contributions to national development”, he said.
However, Chief Emma Nwosu, a former banker executive and financial analyst, disagrees, insisting that we have to do more to achieve fiscal federalism.
“It is nothing really – just crumbs from the table of the master to appease people; moreover, it is for everybody and does not change the status quo. Fiscal federalism is essentially that each state or region should control what they produce and send a percentage to the centre; does this tinkering with the revenue sharing formula affect the basic element of derivation and control of resources; truly it does not go far enough.