Opinion
Minimum Wage And The Revenue Debate (I1)
The N18,000.00 minimum wage and revenue debate has assumed many colours and shapes following the delay in implementing the national wage law which has become binding on the public sector and private organisations employing 50 or more workers.
The state governors led by Rt. Hon. Chibuike Rotimi Amaechi of Rivers State have continued to argue that with the present revenue allocation formula in which the federal government takes 52.68 percent of the centrally-collected revenues in the distributable pool account leaving the states and local government councils with only 26.72 per cent and 20.60 per cent respectively, they would not be able to pay the N18,000.00 minimum wage and meet the critical developmental challenges of their states.
Thus they are asking for a review of the revenue allocation formula that would give the federal government, states, and local government councils 35 per cent, 42 per cent, and 23 per cent of the centrally-collected revenues respectively. They are also asking for the removal of fuel subsidy which reportedly consumes over N693 billion annually from the federation account.
On the other hand, the Nigeria Labour Congress argues that the states have enough resources to implement the Minimum Wage Act which was signed by President Goodluck Jonathan in March. To the labour union, if the state governments cut down on their huge and excessive expenses on governance, they would have enough money to pay the wage and fulfil their socio-economic obligations to the people. The union posits that payment of the minimum wage is not debatable considering that it was agreed by the government, the organised labour, and the other stakeholders. In fact the labour union has urged the state governments to pay the minimum wage which implementation date was April 1 without further delay in order not to accumulate too much arrears.
From media reports, some well-meaning Nigerians have also lent their voices to the debate. They include Professor Solomon Akinboye, Head of Department, Political Science, University of Lagos, Prof. Itse Sagay (SAN), and Alhaji Hamman Tukur, a former chairman of the Revenue Mobilisation, Allocation, and Fiscal Commission (RMAFC). According to Prof. Akinboye, the problem with Nigeria is that of inability to manage its resources very well. He feels that the revenue allocated to the states from the federal distributable pool account should be increased to enable them (states) meet their financial needs.
Prof. Sagay, on his part, supports the labour union that the state governors must pay the N18,000 minimum wage. To him: “They (State governors) have no choice in this matter. It is high time Nigerians, particularly the political elite began to distinguish between when they have discretion, and when they are compelled. On this matter, they are compelled to pay. It is a legal issue and they must adhere to it.”
In his own contribution to the debate, Alhaji Tukur argues that in view of the money that comes into the Federation Account, the states can pay the N18,000.00 minimum wage without removing the subsidy on fuel. In his words: “The money they (governors) get from the Federation Account alone is enough to pay workers. It is unfortunate that the burden is being passed on to the ordinary man.
“There is enough resources in the country for all. The problem is that the federal and state laws clash. The federal law cannot impose on the state what to do with the money they get from the federation account. Also, the state cannot impose on the local government what to do with their money. The laws are there and the fact remains that the governors can pay the new wage”.
In the final analysis, the minimum wage and revenue debate shows the pervasive nature of the social, economic, and political problems of the country. Though compared with such old federations as the United States of America (USA), Australia, and Canada, Nigeria is still a fledgling federal nation, it is old enough to have settled its basic socio-economic and political framework.
Since 1946 when the problem of revenue allocation began in Nigeria following a change in the country’s constitution from unitary to a federal one several ad hoc commissions or committees on revenue allocation have been established. They include the Philipson Commission (1946), Hicks – Philipson Commission (1951), Chick Commission (1953), and Raisman Commission (1958). Others are Binns Commission (1964), Dina Interim Revenue Allocation Review Committee (1968), Aboyade Technical Committee on Revenue Allocation (1977), and the Okigbo Commission that was appointed in 1979 to review the existing system of revenue allocation with respect to such factors as national interest, derivation, population, even development and equitable distribution, and equality of state.
Nigeria has also had a long history of grants by which the national government remitted to the federating units funds outside their statutory allocations to assist them perform their social and economic functions. But because of the uncertainty surrounding these grants, the irregularity in their disbursements, the vagaries of their timing, and the frequency and sometimes the sudden change in the federal government’s priorities, the practice of grants has not been used as an effective system of rescuing the states from the problems of resource constraints in respect of meeting their constitutionally determined obligations.
Another problem associated with the minimum wage and revenue allocation quagmire is the over reliance of the states on the distributable pool. As B.O. Nwabueze noted in his book Federalism in Nigeria Under the Presidential Constitution, “Federally-collected revenue is the mainstay of the finances of the state governments, accounting for a little over 90 per cent of their total revenue. Upon this revenue, therefore depends the ability of the state governments to maintain their services; to pay their staff, pay for essential supplies and execute their capital projects. Their financial viabilities and credibility as autonomous government units hang upon it. As far as they are concerned, the motivation for its sharing is understandably one of self-survival.
For them, the sharing is almost like a matter of life and death, exciting their deepest concern and their strongest emotions. Hence the intensity of the question concerning it.”
So until Nigeria runs a true federal system in which the national and state governments stand to each other in a relation of meaningful independence and balanced division of powers and resources sufficient to support the structure, issues such as payment of minimum wage and revenue sharing will continue to generate national debate, political pressures and even inter-regional struggles for the national wealth.
As things stand now, the state governments, local government councils and other public and private organisations with 50 or more workers on their payroll must rise to the challenge of paying the N18,000.00 minimum wage for the law of the land must be respected.
From all indications, Nigeria possesses enough human and material resources to become a true economic powerhouse in Africa. According to the National Population Commission (NPC, 2023), the country’s population has grown steadily within the last decade, presently standing at about 220 million people—mostly young, vibrant, and innovative. Nigeria also remains the sixth-largest oil producer in the world, with enormous reserves of gas, fertile agricultural land, and human capital.
Yet, despite this enormous potential, the country continues to grapple with underdevelopment, poverty, unemployment, and insecurity. Recent data from the National Bureau of Statistics (NBS, 2023) show that about 129 million Nigerians currently live below the poverty line. Most families can no longer afford basic necessities, even as the government continues to project a rosy economic picture.
The Subsidy Question
The removal of fuel subsidy in 2023 by President Bola Ahmed Tinubu has been one of the most controversial policy decisions in Nigeria’s recent history. According to the president, subsidy removal was designed to reduce fiscal burden, unify the foreign exchange rate, attract investment, curb inflation, and discourage excessive government borrowing.
While these objectives are theoretically sound, the reality for ordinary Nigerians has been severe hardship. Fuel prices more than tripled, transportation costs surged, and food inflation—already high—rose above 30% (NBS, 2023). The World Bank (2023) estimates that an additional 7.1 million Nigerians were pushed into poverty after subsidy removal.
A Critical Economic View
As an economist, I argue that the problem was not subsidy removal itself—which was inevitable—but the timing, sequencing, and structural gaps in Nigeria’s implementation.
- Structural Miscalculation
Nigeria’s four state-owned refineries remain nonfunctional. By removing subsidies without local refining capacity, the government exposed the economy to import-price pass-through effects—where global oil price shocks translate directly into domestic inflation. This was not just a timing issue but a fundamental policy miscalculation.
- Neglect of Social Safety Nets
Countries like Indonesia (2005) and Ghana (2005) removed subsidies successfully only after introducing cash transfers, transport vouchers, and food subsidies for the poor (World Bank, 2005). Nigeria, however, implemented removal abruptly, shifting the fiscal burden directly onto households without protection.
- Failure to Secure Food and Energy Alternatives
Fuel subsidy removal amplified existing weaknesses in agriculture and energy. Instead of sequencing reforms, government left Nigerians without refinery capacity, renewable energy alternatives, or mechanized agricultural productivity—all of which could have cushioned the shock.
Political and Public Concerns
Prominent leaders have echoed these concerns. Mr. Peter Obi, the Labour Party’s 2023 presidential candidate, described the subsidy removal as “good but wrongly timed.” Atiku Abubakar of the People’s Democratic Party also faulted the government’s hasty approach. Human rights activists like Obodoekwe Stive stressed that refineries should have been made functional first, to reduce the suffering of citizens.
This is not just political rhetoric—it reflects a widespread economic reality. When inflation climbs above 30%, when purchasing power collapses, and when households cannot meet basic needs, the promise of reform becomes overshadowed by social pain.
Broader Implications
The consequences of this policy are multidimensional:
- Inflationary Pressures – Food inflation above 30% has made nutrition unaffordable for many households.
- Rising Poverty – 7.1 million Nigerians have been newly pushed into poverty (World Bank, 2023).
- Middle-Class Erosion – Rising transport, rent, and healthcare costs are squeezing household incomes.
- Debt Concerns – Despite promises, government borrowing has continued, raising sustainability questions.
- Public Distrust – When government promises savings but citizens feel only pain, trust in leadership erodes.
In effect, subsidy removal without structural readiness has widened inequality and eroded social stability.
Missed Opportunities
Nigeria’s leaders had the chance to approach subsidy removal differently:
- Refinery Rehabilitation – Ensuring local refining to reduce exposure to global oil price shocks.
- Renewable Energy Investment – Diversifying energy through solar, hydro, and wind to reduce reliance on imported petroleum.
- Agricultural Productivity – Mechanization, irrigation, and smallholder financing could have boosted food supply and stabilized prices.
- Social Safety Nets – Conditional cash transfers, food vouchers, and transport subsidies could have protected the most vulnerable.
Instead, reform came abruptly, leaving citizens to absorb all the pain while waiting for theoretical long-term benefits.
Conclusion: Reform With a Human Face
Fuel subsidy removal was inevitable, but Nigeria’s approach has worsened hardship for millions. True reform must go beyond fiscal savings to protect citizens.
Economic policy is not judged only by its efficiency but by its humanity. A well-sequenced reform could have balanced fiscal responsibility with equity, ensuring that ordinary Nigerians were not crushed under the weight of sudden change.
Nigeria has the resources, population, and resilience to lead Africa’s economy. But leadership requires foresight. It requires policies that are inclusive, humane, and strategically sequenced.
Reform without equity is displacement of poverty, not development. If Nigeria truly seeks progress, its policies must wear a human face.
References
- National Bureau of Statistics (NBS). (2023). Poverty and Inequality Report. Abuja.
- National Population Commission (NPC). (2023). Population Estimates. Abuja.
- World Bank. (2023). Nigeria Development Update. Washington, DC.
- World Bank. (2005). Fuel Subsidy Reforms: Lessons from Indonesia and Ghana. Washington, DC.
- OPEC. (2023). Annual Statistical Bulletin. Vienna.
By: Amarachi Amaugo