Mass retrenchment looms over new minimum wage, as OPS reject N70,000

There is a high possibility of massive job losses within the organised private sector, OPS, should employers of labour be compelled to comply with the upward review of the national minimum wage to N70, 000.

On Thursday July, 18, President Bola Tinubu, and the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) led by their presidents, Joe Ajaero and Festus Osifo, respectively, agreed to N70,000, as the new minimum wage during their meeting at the Presidential Villa, Abuja.

The National Assembly will Tuesday get an executive bill on the new national minimum wage, which will replace the N30,000 minimum wage that expired on April 18, 2024.

However, Business Hallmark’s analysis shows that mass retrenchment can only be averted in an event of immediate and drastic actions by the government to address prevailing economic realities that have left businesses struggling with high production cost and low patronage.

Hinting at an economic revamp by strengthening the organised private sector at the third edition of the Nigeria Employers’ Consultative Association (NECA) summit recently in Abuja, the President reiterated that he has embarked on economic reforms since he assumed office.

After cancelling petrol subsidies in his inaugural speech, Tinubu administration went further to merge the naira exchange rates. In April, the government also cancelled subsidies for Band A electricity consumers.

On the monetary policy side, the Central Bank of Nigeria (CBN) has moved the benchmark interest rate by 150 basis points from 18.50 per cent in May 2023 to 26.25 per cent, after three consecutive hikes in 2024. This totals 750 basis points since February and has triggered alarm bells in the ranks of the organised private sector.

The CBN’s Monetary Policy Rate (MPR) hikes this year entrench its hawkish stance, which has seen 11 rate increases since May 2022, as it struggles to contain the inflation rate and the more recent exchange rate volatility.

But the reforms have not instigated economic revival in reality. As the naira depreciates to record levels, energy costs have spiralled out of control. From N68 per kilowatt-hour, the tariff for the Band A segment climbed to N225/kWh before dropping to N206.80/kWh in May.

Headline inflation stood at 34.19 percent in June 2024, according to data released by the National Bureau of Statistics (NBS) on Monday, July 15, 2024, compared to 22.22 per cent a year ago. Food inflation grew to 40.87 percent in June from 40.66 percent in May 2024. The naira has plunged from N460/$ in May 2023 to N1,500/$ now, with no stability in sight. All these have combined to make the business environment too harsh for most organizations to remain in business.

Little wonder the Organised Private Sector of Nigeria (OPS), has attributed the current socio-economic crises in the country to hasty government policy shifts implemented without adequate mitigation plans.

The OPS comprises the Nigeria Employers’ Consultative Association; Manufacturers’ Association of Nigeria; National Association of Chambers of Commerce, Industry, Mines and Agriculture, and Nigeria Association of Small and Medium Enterprises and the Nigerian Association of Small Scale Industrialists.

The associations expressed their concerns separately, with NECA highlighting the negative impact of major policy shifts undertaken by the government in 2023.

At the 67th Annual General Meeting of NECA in Lagos, President and Chairman of the Council, Taiwo Adeniyi, lamented that the removal of fuel subsidies and exchange rate liberalization have created market distortions, increased business costs, and led to a contraction in business activities since mid-2023.

Adeniyi stated, “Private businesses are struggling with high production costs due to increased import bills for foreign inputs and raw materials. The liberalization of the forex regime has significantly raised import costs for the private sector.

“We urge the Federal Government to review the current forex liberalization policy and adopt a more guided forex management procedure that supports domestic production.”

Adeniyi also raised concerns about the high cost of doing business due to the depreciation of the naira, increased Customs forex rates for clearing cargoes, and business-antagonistic regulations.

He urged the government to implement pro-business policies that drive production and job creation and called for exhaustive consultations with private sector stakeholders on policy issues.

On its part, the Manufacturers Association of Nigeria (MAN) identified foreign exchange volatility, inadequate power supply, and high inflation as significant challenges in the first quarter of 2024, leading to a surge in production and distribution costs by 20.7 percent.

MAN’s Director General, Segun Ajayi-Kadir, highlighted the need for the government to address forex scarcity, improve electricity supply, promote fiscal sustainability, and ensure policy consistency to improve the sector’s performance.

Contributing to the discourse, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) also expressed concerns about the rising cost of doing business.

The Director General, Sola Obadimu noted that high interest rates are limiting the financial capacity of MSMEs and large businesses, leading to downsizing and potential increases in unemployment and crime rates. He emphasized the need for improved public finance management to mitigate the harsh economic environment.

Incentives for compliance

Reacting to the new minimum wage announcement, the OPS commended the President for ending the protracted national minimum wage negotiations, but stressed the need for government to facilitate compliance with the necessary incentives.

“While we commend the President for putting to rest the immediate issue of the National Minimum Wage, we also note, most importantly, his commitment to support the sub-nationals and the Organised Private Sector to pay the new wage,’’ the Director-General of NECA, Mr. Adewale-Smatt Oyerinde, stated.

While noting that consultation was ongoing within the OPS, the NECA Director-General explained that the minimum wage agreement was premised on the understanding that the government would take definite steps to reduce the current economic burden on the private sector, including the reversal of the electricity tariff hike, among other supports.

He said, “During the consultations at the National Minimum Wage Committee, the OPS strongly expressed concern about its ability to pay the N62,000 recommended by the Tripartite Committee.

“In fact, the N62,000 was premised on the understanding and agreement by the government representatives that the government will take definite steps to reduce the current economic burden on the organized private sector.

“The supports requested included the reversal of the increase in electricity tariff, CBN redemptions of all outstanding forwards for companies in the productive sector, a freeze on the introduction of new taxes and levies on businesses for the next five years, duty exemption on imported conversion kits and government subsidy on procurement of same.

“Others are a fixed rate of N800 for the assessment of import duty on all production inputs, revisit of the recent Financial Reporting Council regulation to curtail its application to private businesses, enforcement of the Executive Order 003 and 005 on Patronage of Made in Nigeria Product by Ministries, Departments and Agencies of Government and the National Assembly and the discontinuation of the Price Verification Portal, as it is inimical to the smooth operation of businesses and the basis for setting it up no longer exists, among others.”

However, Oyerinde stressed that the ability of the OPS to pay remains a fundamental consideration, urging the President to implement the incentives the government promised the private sector.

“The proposed support by the President to organised businesses should be immediately announced to enable businesses to plan effectively. The private sector will continue to partner with organised labour to ensure compliance and inclusive economic development, while we look forward to the support promised by the government,” he added.

However, analysts do not see government matching words with action in the area of boosting the capacity of the private sector anytime soon to be able to pay the new minimum wage.

“This government is well known for promising a lot and doing little or nothing, and I doubt if anything is going to change this time”, said Mr. Silas Ibekwe, a business development expert.

‘”Any attempt to compel the private sector to comply with the new minimum wage without government support will lead to serious downsizing, which, of course, will push many people back to the labour market and throw families into hardship.”

For Francis Adeyemi, a public affairs commentator, this is one of those promises that government will make without any serious plan of fulfillment.

“With its desperation to generate revenue, this government is not likely to fulfill whatever promise it made to the private sector concerning incentives to pay new minimum wage’’, Adeyemi said.

‘”Most private sector firms will either ignore the government and pay whatever they can pay or sack workers in order to be able to pay N70, 000.”

Meanwhile, in a meeting with the Finance Committee of the National Assembly on Monday 15 July, Nigeria’s economic managers claimed the ailing economy was getting revitalised based on emerging indicators.

Also, the Group Executive officer of NNPCL, Mele Kyari, has said the Port Harcourt refinery would start production by early August, which will be followed by the Warri refinery months after, and Kaduna refinery latest by December this year. He was confident that based on emerging indicators in the energy and gas sector, Nigeria would be net exporter of petroleum products by December this year.

Experts expect the Monetary Policy Committee of the CBN not to hike the benchmark interest rate any further, as it meets on Monday and Tuesday.