By Peace John

On March 19, 2019, the new national minimum wage bill, an issue that featured widely in the 2019 presidential campaigns, finally received legislative approval. The Senate approved ₦30,000 as the new National minimum wage, after nearly 8 years of no-increase from the ₦18,000 paid as minimum wage since 2011. The wage increase was due for review in 2016 according to the law that stipulates that minimum wage should be reviewed at least once every 5 years. As of 2017, Nigeria’s labour and trade unions had initiated agitations and advocacy for a raise for minimum wage workers, particularly owing to the over-due review and inflation’s effect on the value of the wages received. The sustained outcry undertook threatening dimensions, such as strikes and protests on several occasions, to accentuate their demands. Now, their voices have been heard, and what seems to be an applaudable achievement for them, if implemented, may bring with it several short-term and long-term fiscal and economic implications for Nigeria. More importantly, based on prevailing economic realities in Nigeria, it is one thing to approve wage policies and another thing to possess the unwavering capacity to pay the agreed amount. In light of the newly approved minimum wage, this piece highlights the plausible responses of the government, businesses, and the macro-economy at large.

Fiscal Responses

Government’s Non-capital Spending to expand.

As the new wage policy awaits the president’s assent, implementation processes become potentially inevitable and the government is expected to fund the costs arising from implementing the policy. Such costs arise in the form of an increase in personnel expenses with spikes in the percentage of the government revenue utilized for wage bills. According to the CBN, the federal government’s personnel cost rose by 18.5% to N1.85 trillion as the minimum wage was increased from N7,500 to N18,000 in 2011, thus accounting for 52% of FG retained revenue. By 2016, personnel spending had gulped about 59% of FG’s N3.2 trillion revenue and is now projected to enlarge to N2.29 trillion in 2019. With the new minimum wage approved, the government is expected to tender a supplementary budget that would provide for the imminent rise in the wage bill. While the federal government is faced with this stern burden of incorporating the new wage bill into its already strained finances, states face a more severe test given the recurring struggles to pay salaries. These excessive burdens may leave the governments with no choice than to increase borrowing to settle personnel costs – causing a devastating swing on the country’s high debt profile. However, given the shortfall in borrowing capacity, borrowing is almost not an option to be considered. Alternatively, a lower hanging fruit may remain an increase in taxation, particularly Value Added Tax (VAT) – but it has its implications.

Increase in tax rate almost inevitable

Taxation is one means, among many others, used by governments to boost revenue and meet fiscal obligations. To enable the Nigerian government to generate more revenue sufficient to fund the supplementary budget, it is considering an increase in tax rate (VAT). At the prevailing standard 5% VAT, the government generated from about N482 billion in 2013 to N972.3 billion and N1.1 trillion in 2017 and 2018 respectively. However, the tax revenue together with IGR and others, were not sufficient to cater to some states salary structures as many workers were owed salaries for several months. With the recent consideration of 50% rate increase, a VAT would be applied at 7.5% if implemented. The new rate provides a renewed opportunity for the government to garner more revenue; however, the actual point of concern is if this likely increase in revenue will be sufficient to pay the new minimum wage. Although no empirical evidence exists to forecast the amount of tax revenue needed to accommodate the wage increase, the fiscal sustainability of the new wage rate is uncertain given the limited progress made on increasing tax revenue in Nigeria.

Economic Responses

Sustained Inflationary Pressure

In theory, businesses are forced to raise prices when there is an increase in minimum wage, and this ultimately places cost-push inflationary pressures on the economy. Real business practices conform with this theory. A strategic attempt to absorb increasing labour costs tend to cause producers to transfer the cost of wage increase to product prices, which are eventually borne by consumers in form of higher prices. For example, in 2003 when the government reviewed a wage increase, prices of goods and services rose, and inflation rate spiked from about 10.5% to as high as 24%. A similar wage-increase in 2011 saw the inflation rate remain at double-digit for two years thereafter, according to data from the CBN.  If implemented, the 2019 wage increase may cause inflation rate to extensively exceed the CBN’s 12% projection and gradually erode purchasing power and value of the new minimum wage in the long term. By then, the cycle of agitations for another wage raise may come into effect, yet again.

Possible job losses

Empirical evidences such as from the World Bank, suggest that employment effects of a rise in the minimum wage are often significant and negative, particularly in a largely informal labour market like Nigeria. By reorganizing internal human resource structure, businesses that lack the capacity to keep up with an increase in overhead costs may take drastic measures such as retrenching workers and downsizing labour time. With a number of job losses and layoffs, unemployment and underemployment rates are forced to increase. A survey by the NBS showed that between 2011 when there was a rise in minimum wage and 2012, about 1.43 million people who were fully employed or underemployed lost their jobs. Although there was an increase in the labour force population, the total number of unemployed persons rose by 82.5% to 7.3 million. It is likely that the implementation of the 2019 approved minimum wage may project a similar trend given past occurrences.

Going Forward:

Although revenue from taxation has grown over the years, efforts of the government and revenue generating agencies to improve tax revenue have yielded limited progress. While collection processes have improved, other areas for improvement exist such as limited tax coverage that mitigates the collection efforts. To ensure that efforts yield the much-needed progress and beyond the existing collection process, widening Nigeria’s tax net is absolutely necessary. Lagos state sets a remarkable example for other states to follow through its model tax administrative machinery. The machinery granted full autonomy to the Lagos State Inland Revenue Service in 2006 and created new tax operational units within the agency. In 2008, the agency introduced the self-assessment filling system and a system for collaboration with other MDAs. To capture a wider range of the informal sector, in 2016, tax assessments were translated to various local languages, and more than 39 tax stations had been established across the state with compliance initiatives as priority. As a result of the wider coverage, Lagos state has witnessed unprecedented IGR growth – from a monthly average of N5.1 billion in 2006 to N56.7 billion in 2018. Going forward, states whose tax agencies lack such machinery should first be granted autonomy by the state governments.  Further, capturing a wider range of informal sector in each state and at the federal level through similar initiatives is vital to adding more taxpayers into the tax net.

Individuals and businesses are not left out in ensuring that the new minimum wage policy works for the improvement of the economy. To do this, critical emphasis on employee/worker productivity is essential, particularly when the alternative retrench mechanism is not an option. For individuals: collecting a higher wage is needful to encourage their improved commitment and performance. For businesses: given that productivity is an important determinant of economic growth, spurring productivity could inform higher national output. More regular assessments and demanding increased realistic targets from each employee are imperative measures that could be used to ensure improved productivity among workers and employees.

In Nigeria, primary education is free and compulsory (in principle). However, in places like Waru, an internally displaced persons (IDP) settlement in Abuja, children of primary school age do not go to school. The reason is simple: their parents cannot afford other non-tuition fees levied on them by the school authorities. The 1,904 out-of-school children in Waru IDP settlement are only a small fraction of over 13 million out-of-school children in Nigeria.

Who are the left behind in Quality Education in Nigeria?

Nigeria has the highest number of out-of-school children in the world, and children living with disabilities account for a significant part of that population. Disabled pupils require specialised training and teaching procedures designed to meet their unique learning needs, such as sign language for the deaf or braille for the blind. However, Nigeria’s educational system is not inclusive of children with special needs. For example, learning outcomes of disabled pupils are not tested in standard literacy assessment in the demographic and health surveys (DHS). The few special schools that exist are found to be socially dysfunctional and irrelevant to the total well-being of persons with disabilities.

Another group excluded from quality education in Nigeria are children from nomadic groups, comprising pastoralists and migrant fishing groups. Over 5.2 million nomadic children are out-of-school despite government interventions, such as the National Nomadic Education Commission (NNEC). Constant mobility of this group in search for economic opportunities is a key challenge. With frequent migration across states, policy interventions by the state and local governments are ineffective.

Over 7 million students in the Almajiri education system in Northern Nigeria are also excluded from quality education. Historically, the system was set up to train children and youth (from 5 to 22 years old) in Qur’anic literacy. However, the system has limited capacity to deliver basic learning due to lack of integration with the formal education system and inadequate support from the government. In the absence of supervision from the government, students are mostly used to collect alms in support of their teachers’ livelihoods.

Violent conflicts in Nigeria have led to the displacement of over 1.7 million people, and of this population, 56% are children (UNICEF, 2016). The displacement has significantly increased the problem of access to education, especially in Northern Nigeria, where human development is lowest in Nigeria. The efforts of government, donors, and foundations to provide emergency education opportunities for children in IDP camps fall short of delivering quality learning. Firstly, the environment is hardly conducive to learning. Secondly, the psychosocial effects of violence on the children affect their preparedness.

Why are they left behind?

Three reasons stand out:

Exclusive policies: The design and management of primary and secondary schools in Nigeria are non-inclusive and inaccessible to children with disabilities. Also, the Almajiri education system is not integrated with the formal education system. This is a setback for the achievement of Sustainable Development Goal 4 (SDG4) goal of leaving no one behind in terms of access to quality education.

Arms proliferation: The proliferation of small arms and light weapons has become a significant challenge for Nigeria. It has led to increased insecurity in numerous parts of the country, fueling communal clashes, criminal activities, insurgency and instability. Such violence has been persistent over the years due to global arms proliferation and deficiencies in the national security and border infrastructure. The violent activities carried out by Boko Haram, which led to the displacement of millions, is further enabled by the use of small arms and light weapons. Over 1,500 schools were destroyed between 2014 and 2017 in North-east Nigeria. There were at least 1,280 casualties among teachers and students. Additionally, over 1,000 students have been kidnapped from their schools by the insurgents.

Poverty: Although basic education is free in Nigeria, students are required to pay a variety of fees, such as sports and sanitation fees. This reduces the likelihood of economically disadvantaged children, such as IDPs, to gain access to schooling.

Way Forward

Our findings within Southern Voice’s “State of the SDGs” project have helped us come up with recommendations for the various actors. To increase access to and improve education in Nigeria, we propose the following:

To the Government: There is substantial scope for the review of the educational system to make it more inclusive. Educational policies should be carefully designed, taking into consideration all groups that are currently unable to access quality education in Nigeria. Increased funding is needed in the sector for the provision of basic needs, like infrastructure/school facilities.

To the international community: Arms proliferation is an enabler of violent conflict. There is a need for enhanced efforts by states and multilateral agencies to work collaboratively to curb arms’ proliferation. This can be done through better accounting of arms trade, as well as control of illegal arms trade enablers, such as illicit financial flows and porous borders.

Quality education is a crucial enabler for sustainable growth and development across nations. Nigeria faces a dual task:

• improving education access to more than 13 million out-of-school children
• and ensuring that all students get quality education.

The government needs to identify those excluded from quality education, as well as work with global actors, to design an effective policy and address the challenges of accessing quality education in Nigeria. With our research, we hope to contribute to achieving these goals.

About the SVSS project

The Southern Voice “State of the SDGs” initiative provides evidence-based analysis and recommendations to improve the delivery of the Sustainable Development Goals (SDGs). As a collaborative initiative, the program compiles a broad range of perspectives that are usually missing from international debates. This report aims to fill an existing knowledge gap. Southern Voice is confident that it will enrich the discussions on the SDGs and level the playfield with new voices from the Global South.

This blog was first published on  SouthernVoice

In 2016, Nigeria signed power purchase agreements (PPAs) worth US$2.5 billion with 14 independent power producers (IPPs) to build a total 1,125 megawatts of installed solar capacity for the national grid. Currently, grid power consists mainly of gas-fired power (85%) and hydropower (15%), with less than 1% solar. The solar IPPs are planned mostly in the northern parts of the country, where higher solar radiation is present (see map). However, put and call options agreements (PCOAs), essential to ensure the bankability of the project, are yet to be signed by twelve of the fourteen IPPs (see Table 1) due to extended negotiations on Partial Risk Guarantees with the World Bank and the African Development Bank.

The deadlock is caused by disagreements between the government and the IPPs on the PPA tariff structure. While IPPs want to sell power at the initially agreed US$0.115 per kWh, the government is insisting on a tariff of US$0.075 per kWh, citing declining solar costs and comparable projects in countries such as Senegal (US$0.05/kWh) and Zambia (US$0.06/kWh).¹

Key Factors for Resolution

1. Fair and Competitive Pricing. While the average cost of procuring solar power has declined globally by 74% since 2009, markets differ greatly across countries.² The compromise must reflect the true risk-adjusted costs of solar systems in Nigeria.³ A balance should be struck between generating appropriate investor returns while delivering inexpensive energy to impoverished areas short of power.
2. Commercial Viability and Cost Recovery. Gas suppliers, GenCos, and DisCos are already affected by tariffs set below cost recovery (averaging US$0.066/kWh), which inevitably lead to stalled projects.⁴
3. Country Risk Premium. Nigeria is already a high-risk market. Disregarding legally-binding contracts agreed in the PPAs may contribute to weakening investor trust, raising the country’s overall investment risk profile, negatively affecting future investment and, ultimately, energy prices.

Conclusion: Broaden the tools to find a solution. The Government and investors can renegotiate and compromise in these deadlocks through resourceful policy mechanisms that could yield more desirable outcomes for both parties. These include the removal of the import duty on solar components to reduce total costs for the power producers. It could also include a capacity scale down to a captive market, for instance secluding reliable solar systems primarily for communities with high commercial, agricultural and industrial activities – to ensure that the government and populace get the most out of the new power projects. Different tariffs could also be applied to different IPPs on the grounds of certain considerations such as project locations and sunk costs.

	Company	Capacity	State	PCOA Signed
1.	Afrinergia Power Limited	50 MW	Nasarawa	April 2017 (7.5c/kWh)
2.	CT Cosmos Limited	70 MW	Plateau	April 2017 (7.5c/kWh)
3.	Pan Africa Solar	75 MW	Katsina	Not Signed
4.	Nigeria Solar Capital Partners	100 MW	Bauchi	Not Signed
5.	Motir Desable Limited	100 MW	Nasarawa	Not Signed
6.	Nova Scotia Power Dev Ltd	80 MW	Jigawa	Not Signed
7.	Anjeed Innova Group	100 MW	Kaduna	Not Signed
8.	Nova Solar 5 Farm Limited	100 MW	Katsina	Not Signed
9.	KvK Power Limited	100 MW	Sokoto	Not Signed
10.	Middle Band Solar One Limited	100 MW	Kogi	Not Signed
11.	LR Aaron Power Limited	100 MW	Abuja	Not Signed
12.	En Africa	50 MW	Kaduna	Not Signed
13.	Quaint Abiba Power Limited	50 MW	Kaduna	Not Signed
14.	Oriental Renewable Solutions	50 MW	Jigawa	Not Signed

This Memo was drafted in collaboration with Patrick Okigbo of Nextier Advisory This article was first published on energy for growth hub

The stability of the country’s political environment is an essential element in determining and predicting the level of economic growth in a democratic economy. The traditional assumption in the political economy model is that opportunistic politicians have the tendency of manipulating economic policy around election times for political gain. The poor and largely uneducated electorate who are more likely to be susceptible to political manipulations dominate the process of electioneering in developing countries such as Nigeria. This piece analyses the changes in economic indicators caused by clearly exogenous changes resulting from the electioneering process (i.e. before, during and after the elections).

Do Election Cycles sway the Stock Market?

While it is well established that election cycles in Nigeria bring with it some level of political instability amongst and between rival parties, the dimension of this effect on the economy is unclear. In a review of stock market information, the following findings were emphasized:

• In a research study by Osamwonyi and Omorokunma (2017) on portfolio selection in the Nigeria Stock Exchange (NSE) during elections, the analysis established that while investors strived to minimize losses and maximize gains, market friction and instability during the 2003, 2007 and 2011 election periods instigated low returns performance; and election results negatively affected the relationship between risk and return behaviour of selected companies.
• In 2015, few months before the general elections, stock indices experienced more downtrends than uptrends and eventually culminated in an annual loss of -16.14 percent. In a similar report, the pre-2015 election year was characterized as a major-loss year for investors, a reoccurrence of a similar event in the pre-2011 election year. Investors lost about N3.23 trillion as at the end of 2014; a similar occurrence is tracked in the forthcoming 2019 elections: 2018 was marked by severe market losses.
• In Nigeria, evidence shows that trading activities on the stock markets tend to react sensitively to past presidential election results (i.e. 2011 and 2015 elections). Particularly, the outcome of the 2011 elections saw trading activities negatively responding 2 days prior to and till 4 days after the election (Osuala et al., 2017). Overall, in both election years, electioneering activities and outcomes do affect stock market in a certain direction, depending on both the winner as well as the anticipated economic and financial policies of the new administration.
• With respect to foreign investment in the stock market, a similar negative trend is seen with net foreign portfolio investment and All Share Index (ASI) generally dwindled towards the potential end of a presidential tenure: six months before another election is held.[1] The 2003, 2011 and 2015 elections showed the same trend and also showed a continued decline few months after the elections.

How much will the election cost the nation?

The need to win the hearts of electorates and to garner more votes via campaigns often push up government and contesting politicians’ spending in the months leading to the polls. The National Institute of Legislative Studies reports that, in 2015, more than $600 million was spent for an election that involved about 67 million voters – far more than obtainable in developed and bigger economies like Canada and the United Kingdom. The cost was not inclusive of undocumented individual costs incurred by politicians. The 2019 election is to cost about $669 million (N242 billion)[2], equivalent to the current running budget for capital projects in both health and education. In a country with over 70 percent of its populace living in poverty and an economy basked in excessive borrowings, the extensive spending is made at the expense of capital expenditure, provision of essential social infrastructure, and economic progression. The anomaly has become a norm in Nigeria and has also invalidated the cap on election campaign spending (N1 billion for presidential candidates and N200 million for governors) stated in the electoral act, 2010 as amended. Although election spending is absolutely necessary, the huge costs haunt the country post-election.

How have exchange rate, FDI, and external reserve fared during and after elections?

Presidential and general campaign periods are boom eras for the parallel foreign exchange market, and with huge dollar demands for political campaign activities, come the imminent pressure on the value of the naira. During most of the previous election periods, exchange rates were clearly seen to be adjusting to uncertainties surrounding the political environment. For the past four elections—1999, 2003, 2011, and 2015—the probability of having depreciating exchange rate was higher in the months preceding the elections, and sustained depreciation of the Naira was evident few months before, and in some cases, beyond the elections. In 2011, the exchange rate which averaged N153.98/$ six months to election rose to N157.1/$ in election month. Also, the Naira exchanged for N168.64/$ in the run-up to the 2015 election, and increased to N222.93 in election month. For the 2019 election, there are anticipated pressures on the stability of the Naira; however, the CBN is consciously dedicated to ensuring stability in the foreign exchange rate market.

In addition, foreign investors are often deterred during election periods, either in a risk-averse or risk avoidance posture. Their appetite for investments stall prior to elections and this reflects a mindset to gauge the outcome of the elections before further investment decisions are made. For example, Foreign Direction Investment (FDI) flows to Nigeria fell significantly to $73 million one month to the 2007 elections, from $460 million the previous month. Although 2007 marked a transition-government year the falling FDI trend was no different in the month leading up to both the 2011 and 2015 elections. However, there were increases in FDI some months after the stated elections - a possible signal of return of investors’ confidence – at the backdrop of a plausible die-down of political uncertainties. The electioneering period have also injected a dose of precariousness into the value of external reserves. Rather than accrete sustainably, the reserve dwindled during some of the periods and showcased a possible instability in net inflows. Before the 1999,2011 and 2015 elections, the reserves shed some dollars just prior to the election months respectively. For instance, from $8.2 billion five months to the 1999 election to $6.3 billion in the election month, and a significant fall in 2015 from $36.3 billion in the fifth month leading to the general election, to $29.4 billion as at the election month. The trends signify what seem to be capital outflows amid impact of other external factors, and alleged speculations that the reserve was used to fund election campaigns. A similar reserve downtrend is being noticed in run-up months to the 2019 election.

Conclusion

The analysis shows that the electioneering period brings with it not only uncertainty but also significant changes in economic activities. From stock markets to investors’ behaviours the election process and outcomes become determining factors to where people put their money and what they spend it on. This raises the question of what should be the economic policy focus of either the incumbent or incoming government in Nigeria. Given that Nigeria is still recovering from recession and recently ranked with high incidence of poverty, it is expected that the state of the economy should be of upmost priority to policy makers and government officials.

In our forthcoming policy brief we present the economic priorities that the new government needs to focus on. Look forward to it!

[1] http://www.adsrng.com/monthly-bulletin/

[2] https://www.thisdaylive.com/index.php/2018/10/17/finally-nassembly-approves-inecs-n242bn-election-budget/

Tobacco use and the exposure to secondhand smoke is associated with the rising prevalence of non-communicable diseases some of which are the leading cause of preventable death in Nigeria. In 2018, tobacco use in Nigeria has been linked to 16,100 deaths. According to Tobacco Atlas, economic losses accrued to Nigeria in the form of medical treatments and loss of productivity from tobacco-related diseases are estimated at US$ 591 million as of year 2015, twice the amount spent on all malaria treatment interventions in 2015.

While Nigeria has a low smoking prevalence (about 5 percent of adult population), suggesting that tobacco does not pose an imminent health and social challenge, the trend is rapidly changing. The daily cigarette consumption per smoker has doubled from 7 to 14 sticks between 1980 to 2012. The share of male adults who are smokers has also increased from 11 percent in 2000 to 17 percent in 2015. Some key factors have driven the trend in cigarette demand in Nigeria. One is the shift in the strategy of tobacco companies who are increasingly moving away from high income countries where they face more stringent control measures to low- and middle-income countries in Africa with weak tobacco control systems. Another is the effect of popular culture which makes tobacco use seem fashionable particularly for young people.

Despite these striking changes in smoking trends, the policy space for tobacco control is not evolving as rapidly. In June 2018, the government introduced a N58 specific excise tax which will be implemented between 2018 and 2021. However, the new policy puts the excise tax burden at 16% which is significantly below the WHO recommended benchmark of 70% of retail price. Worse still, the tobacco industry is actively lobbying the government to rescind the tax increment.

Aside implementing only a modest increase in tobacco tax, the government is also deficient in other tobacco control measures. Both states and federal governments do not protect citizens from secondhand smoking. So far, only four out of 36 states have implemented laws prohibiting smoking in public places and even in these states, citizens continue to flout the law with no consequence. Also, there are no help services provided to tobacco users willing to quit. Few programmes exist to provide tobacco cessation advice, and low-cost medicines to people who want to stop smoking. At the same time, there are no accessible telephone lines that offer treatment for tobacco addiction.

These gaps in tobacco control efforts is an indication of the dearth of political will for tobacco control policy reforms in Nigeria? Government officials are hardly committed to designing policies in line with global standards as well as mechanisms to ensure the sustainability of these policies. Civil Society Organizations which continue to advocate for better laws and dialogue with stakeholders to achieve results cannot directly bring about the much-needed reforms. Building the political will among state and non-state actors is crucial to achieving remarkable strides in tobacco control.

How can political will be built?  

The key actors in the tobacco policy space, the Ministry of Health and the Ministry of Finance (for taxation policies) will need to initiate and lead reforms more effectively. The presence of a team of reformers who can convene relevant stakeholders, sidestep bureaucratic bottlenecks and neutralize tobacco industry lobbying can potentially lead to major reforms in the policy space. Nevertheless, collaboration between these ministries and other state and non-state actors is important. This is because implementing tobacco control policies requires the action of other government agencies such as the Customs and tax collection agency. Also, government officials will need to leverage on the expertise and influence of CSOs and advocacy organizations, the research capacity of think tanks, and the financial and political clout of international organizations in order to achieve results.

Also, the research and analysis component of tobacco control will need to be enhanced to allow for proper analysis of tobacco control measures. Presently, available (freely accessible on the internet) research outputs on tobacco control, which can potentially serve as evidence for designing and implementing important health policies, are few and limited in scope. For instance, to the best of our knowledge, no nationwide research has been conducted to identify the cost of tobacco-related diseases and its impact on livelihoods.

Applying credible sanctions is another area where political will needs to be built. Despite the fact that the federal law contains an enforcement component, the support and use of sanctions to provide incentives that promote compliance is weak. Law enforcement agencies should routinely examine the manufacturing, storage and distribution process of tobacco companies in order to curtail their activities that are not in accordance with the law. Failure to punish offenders will turn Nigeria into a target country for exploitative tobacco companies.

To ensure that these efforts are sustainable, more resources should be provided to state agencies to boost their operational capacity. For key government agencies such as the Ministry of Health and Nigeria Customs Service, budget allocations for tobacco control should be put in place to cater to tobacco control activities. In particular, modern equipment and facilities required to curb smuggling should be provided to Customs units in border towns. Also, the technical capacity of officials should be built through trainings and peer-to-peer learning.