Nigeria’s minimum monthly wage of N30,000, which most employers, including some state governments are not even paying, has been stuck, rooted, since 2015, when President Muhammadu Buhari assumed power at the Federal level. That is bad enough. But worse is that inflation, which the National Bureau of Statistics put at 9.01 percent in 2015, jumped to 21.34 percent in 2022. As the First Quarter of 2023 was closing in March, the inflation rate climbed to 22.04 percent. By February 2023, food inflation rose to 24.35 percent, a 7.24 percent increase above the 17.11 percent food inflation of February 2022.
Think of the damage that the foolhardy policy of the Central Bank of Nigeria Governor, Godwin Emefiele, caused to the real wages of poor Nigerians. It caused the value of the wages of Nigerian workers to further erode. As the days went on, the ability of Nigerians to purchase goods dwindled. Inflation spiked, and practically every commodity became expensive, for the period of the tomfoolery. To correct the lag between inflation and wages, economists suggest cost of living adjustments that sync income to the current cost of living. To achieve this, you simply recognise the inflation rate, and adjust wages accordingly. That may have informed the unexpected, but magnanimous, 40 percent wage increase recently introduced by the Buhari administration. That is why minimum wages and salaries are adjusted regularly.
Whereas America fixed its current cost of living adjustment rate at 8.7 percent in October 2022, and is expected to review it in October 2023, Nigeria is not even thinking about it. Ebullient Senator, Dino Melaye, who just clinched the ticket of the People’s Democratic Party for the forthcoming off-season governorship election of Kogi State, has an interesting perspective on the nexus between income and expenditure. In an interview with BBC Pidgin English Service, the man who describes himself as a Senator with street credibility (some call it street smarts), reasoned that the prices of gari staple food won’t be affected even if he buys a Lamborghini or a Datsun Laurel automobile. Despite (unverified) reports that local production of rice rose through the efforts of the Buhari administration, the price of (imported or locally produced) rice rose by 201.52 percent between 2015 and 2023, the years of the locust.
The interesting part of Senator Dino’s story of grass to grace is that he earns money in foreign exchange from quick-service-restaurant franchises in America, and converts the proceeds to Naira to live large in Nigeria. Whereas fellow Nigerians earn low wages in the weak Nigerian currency to buy expensive imported goods, Senator Dino earns huge foreign exchange and buys in Naira. Think of a Diasporan Nigerian returning to Nigeria during Christmas to splurge, by converting his American dollar to the Naira at a ridiculously high exchange rate. Even though you may not like the unusual politics or the sometimes bizarre antics and extreme sense of humour of Senator Dino, you have to give him credit for finding a winning formula for surviving in Nigeria’s economic jungle.
To rework a phrase in a song favoured by Rivers State Governor Nyesom Wike, “As he dey sweet holders of the American dollar, he dey pain holders of the Naira.” That, in everyday English, could mean while those with the American dollars are celebrating, holders of the Naira are singing the blues. So, the more the Naira depreciates the better for those with a significant inventory of the dollar. And, of course, that continues the woes of those who have to live on the battered, beleaguered Naira. On April 18, 2023, the gap between the official exchange and the parallel market for converting the dollar to the Naira was a staggering N291.75. The difference between the Naira and the British pound was higher at N377.38. As you search for more Naira to buy hard currencies, you unwittingly devalue the Naira.
One way that economists compare the currency of one economy to another is through purchasing power parity, an attempt to eliminate the difference in the prices of the same product in different economies. Purchasing power parity recognises that the same product may have different values within different economies. A bottle of beverage may cost 100 Kobo in Nigeria, but cost 150 cents in America. Thus the exchange rate between the currencies of the two economies will then be 1.50, or 150 ÷ 100. You can determine right away that you will need more nominal American cents to purchase goods with the Naira in the Nigerian economy. If wishes were horses, the Naira would be stronger than the American dollar.
Currently, the living index of America is 100, its average monthly wage is $5911, and its purchasing power is 100. In Nigeria, the values are, respectively, 41.8, $173 and 7.0. The advertiser of a certain beverage says, “The difference is clear.” And, just as an aside, could members of Nigeria’s political class, which, for this purpose, includes Senator Dino, be deliberately skewing the exchange regime so that they can continue to take advantage of a stronger American dollar, which they have somehow acquired in quantum, over the weaker Naira. What appears to be an intentional political elite consensus to prevent government-owned refineries from running effectively, whilst also employing an army of idle workers, continues to strengthen the scarce foreign exchange needed to buy the strategic petroleum products against the Naira.
Add to that the abysmal failure of the electricity generating, transmission and distribution companies to provide adequate and regular electricity to the homes and businesses of Nigerians. The consequent dearth of locally produced manufactured consumer goods leads to a “thirst” for foreign currency that is needed to buy imported goods. Some Nigerians are cashing in on the existential needs of their compatriots. And you can’t blame them for taking advantage of gaps in the implementation of government policies. In a world that is “flat” and economic activities, in one country directly affect, or are directly affected, Nigerians are paid miserly wages in Naira, but purchase goods at the global rate at which the rest of the world buys such items.
“Imported inflation” is the terminology used to explain the phenomenon whereby a country, like Nigeria, inherits the inflation from the country where it imports its consumer and production goods, like foodstuffs, industrial raw materials, supplies and machinery. One major cause of imported inflation is the exchange rate of the currency of the exporting country. You have to purchase that country’s currency at a rate that you have to add to the sales price of the item in the exporting country. That is a true situation whereby Nigerians experience triple jeopardy; paying for the commodity that is already a victim of inflation in its country of origin, the cost of acquiring the currency with which you are purchasing the item and the landing cost, or the cost of transporting the commodity from the country of sale to your country.
Logistics is key to physically moving a commodity from the producer to the consumer and transforming the commodity from raw material to finished goods. The elimination of landing costs is why some experts insist that Nigeria’s domestic petroleum refineries must be run efficiently. The next government must find a way to link the wages of Nigerians to their expenses.
