Recommended Economic Relief Measures, Palliatives to Cushion Impact of Removal of Subsidy on the Citizenry

Kola Ayeye

On the 23rd of July 2023, I sent a message to a number of contacts, including a couple with sufficient access and leverage in government, containing recommendations targeted at cushioning the impact of removal of subsidy on the citizenry. Those recommendations are rehashed herein with more justification in some instances. They are as relevant now as they were then. It is fair to say that levity in addressing the matters that would safeguard the quality of life of the poor and vulnerable, together with unrestrained waste in continuing with business as usual, are part of the reasons for the existential threats we now face. Hopefully it is not too late to seriously consider reasoned options, even if they are not adopted as long as they supplanted with better options. What is indefensible is this lapse of 9 months with almost zero action on effective mitigation of adverse impacts on the poor. Following are recommended measures.

PART 1 – IMMEDIATE

Federal Govt to set the minimum wage at a living wage, N150,000 – N250,000 indicative

Pass a law incentivising States that can afford it to pay higher than the minimum wage

The law in 2 above should incorporate tax incentives whereby the Federal Government will grant Wage Support Cash Grant to every employer (both private employers and State Governments) that implement the new minimum wage. Benefitting entities must be up to date in remittance of Corporate Taxes and PAYE, and must be on an approved HR Software that eliminates ghost workers (IPPIS). The grants will be for each of the next 3 years.

Scrap NYSC, and instead reimburse employers of labour 50% of gross salaries of new hires of fresh graduates and first-time workers; such employers must pay the minimum wage. This measure should target new employment of additional 100,000 people every year for 4 years. The relief is to be paid for every staff for 3 years. If we assume the Government pays N100,000 per month per employee, this translates to N1.2 million per annum per employee. This will be an aggregate of N120bn in first year and N360bn at peak, assuming 100,000 employees are beneficiaries annually.

Overall, we need elite earnestness in our defence of the poor. There is a tendency to rationalise and accept institutional failures in governance when the brunt is borne by the poor. We all need to frontally and unsparingly insist on measures that benefit the poor. THERE CAN BE NO EXCUSE FOR ZERO TRACTION ON MINIMUM WAGE 9 MONTHS AFTER FAAC HAS BECOME 1.5X PRE-SUBSIDY LEVELS. IT IS UNKIND, PERHAPS UNCONSCIONABLE. We require urgent elite consensus on the need for a substantial increase in minimum wage.

Section 1 of the National Minimum Wage Act provides that the Federal Government is to prescribe the National Minimum wage. It further provides for a seamless review of same every 5 years. Section 2 provides that the Act is applicable throughout the Federal Republic.  Section 16(2)(d) of the Constitution states that the government should provide a reasonable national minimum living wage for its citizens, hence the Federal Government has a constitutionally imposed obligation to provide a national minimum living wage for its citizens.

 I’m not fixated on these recommendations. Government is welcome to discard any recommendation as long as it is implementing better options. What is totally indefensible is doing absolutely nothing to cushion pain almost a year after inflicting same on the citizenry. 

Nonetheless, I have strong views about the minimum wage.

It is not as inflationary as the Federal Cabinet, Governors and Local Govts who now have almost two times the 2023 allocations which many of them are alleged to be using en-bloc to buy dollars exacerbating the pressure on the exchange rate.  How many people does each wage earner support? I suspect 3–5 persons per wage earner, a friend said it may be twice i.e. 6-10. We currently pay starvation wages. Many in Lagos are paid N30,000; N50,000; N 60,000. These are starvation wages. In most commercial centres, what N150,000 will enable workers do is modestly inflationary, not excessively. It will buy more food for cash rather than on credit, they will ride Okada, Keke or public buses to work rather than walk some or all the way; school fees will be paid on time; they will patronise doctors and standard pharmacies rather than unregulated local concoctions. Consequently, paying a living wage, properly managed, will result in significant boost for the domestic economy. It is as much an economic as it is a moral imperative.

The concept of dignity of labour is that for any role considered worthy of hiring, the labourer should afford the basics of life – food, shelter, basic healthcare, transport. People who work 30 days a month should earn enough for food, rent, public transport, basic healthcare and a token savings.

Before Udoji, public workers already had dignity of labour, they were lower middle class and upper lower class. Consequently, the Udoji award funded excess, a lot of new household electronics with high FX content. We are no longer in that position. Most workers are now either lower than upper lower class or outrightly poor, living on less than $1.90 per day. Bear in mind that a household of 5 needs a wage of $9.5 per day (N14,250 @ $:N1500) to be above the poverty line. This translates to N14,250 per day and N427,500 per month. For a 1-income household, paying a third of what will lift the home above the poverty line, and two-thirds for a 2-income household will only be minimally inflationary. The goods that will be bought have a very high local content. FX is the major driver of inflation, secondly huge money in the hands of government and the super rich. Survival money in the hands of the poor comes a distant 3rd. These people don’t patronise BDCs. They don’t go on holidays abroad. They buy Nigerian as they basically use the money to survive.

The increases consequent to the enhanced minimum wage can also be structured to compel workers to invest in home ownership, in pension, in cooperative schemes to boost food production and collective cross-country food haulage to keep food prices down. We need to agree that a living wage is both an economic and moral imperative. We should accept it as a TINA. We then do the hardwork of creating the framework to ensure it works well.

Within existing prescriptions of the Constitution and the National Minimum Wage Act, it is well within our creative capacity to fashion a minimum wage in a manner that:

Sets the wage at a living wage base

Allows the Federal Government to incentivise both States and private employers who comply

Continue to leave room for high-income States to pay more. Lagos, Bayelsa, Rivers, Delta, Akwa Ibom, Ogun and FCT can afford more, and should pay more

PART 2 – SHORT TERM: 365 DAYS

Food Haulage: Select 6-12 Food Haulage Partners (FHPs). Give preference to companies with competence to manage storage and haulage infrastructure to substantially reduce post-harvest losses. Appoint them as Haulage Overseers to register all food haulage transporters for the key food haulage routes. Design a system for subsidising haulage costs to restore haulage costs to Jan 1 2023 levels. This should takeoff before 1st Jun 2024.

Intra-City Commuters: Select 6-12 commuter transport companies as Commuter Transport Partners (CTPs). To qualify, each should have an existing minimum fleet size for 5,000 commuters. Identify 12 cities and towns with highest number of commuters. Appoint Innoson Motors to assemble up to 10,000 double-decker buses that can seat 100 people each over 4 years. Preferably buses should be fueled by gas, not petrol. Allocate buses to the CTPs for deployment in the 12 commercial centres. Create a fraud proof digitally-driven transport subsidy targeted at keeping commuter costs as Jan 1 2023 levels. In July 2023 when this recommendation was originally made, it was proposed that the first set of buses should be deployed latest 1st Jan 2024. Now that inaction has made that deadline redundant, the target deadline should be 1st January 2025.

Intra-City Rail. For the top 6 cities in intra city commuters, commission by competitive bidding, operators to build, operate and manage intra-city rail service with capacity for 50% of rush hour traffic. State Governments to participate. Completion and delivery should be not later than 31st Dec 2026; 3 years. Execution plan must have significant local value added.

Sell all refineries to private operators at their best bids, including paying them to take it over, if that is their best bid

Indeed it was needful to remove subsidy. But it was equally important to contain its inflationary impact. Inflation rate is now a scary 30%, but food inflation at 35% is even higher. Any reasonable endeavour to contain food inflation is worthwhile. As recently as December, a friend’s driver who went to his village in Benue for Christmas lamented his inability to bring produce to Lagos. According to him, tubers sold for N400 at farm gate in Benue is sold for N1,600-N2,000 in Lagos. If the kind of haulage partners we need do not exist, the time to incentivise their emergence is yesterday, not even today. Let TSL, ABC Transport and such other credible sector players be incentivised to take up the role of Food Haulage Partners. The potential rewards in cost moderation between rural and urban areas is immense, suggesting a significant anti-inflation potential. The big hurdles aren’t sufficient reason not to do it. What applies to selection of partners for food haulage applies to selecting partners for management and subsidy of commuter fares.

Some people also fear that the proposal to work with leading transport organisations would pitch government against the road transport unions (NURTW/NARTO), a battle they contend government cannot win. This is unacceptable. Government cannot continue to surrender sovereignty to multiple non-state actors like militants, bandits, terrorists, and road unions only to sacrifice the welfare of the citizens, especially the poor.

PART 3 – WITHIN 2 YEARS

We should commence implementation of a program of investment in farm storage and food haulage to drastically reduce post-harvest losses. The investment should be made by private sector. Government’s role should be to provide incentives and an enabling environment. The necessary investments should have been made and concluded by 1st Oct 2026

PART 4 – WITHIN 4 YEARS

Conclude deployment of 10,000 gas-fueled double-decker buses

Conclude reduction of post-harvest losses

Conclude intra-city rail in 6 cities

SETTING THE CONTEXT – UNDERSTANDING SUBSIDY 

PMS subsidy is perhaps made up of three major components:

TOTAL FRAUD: Using forged documents to claim subsidy without importing any products.

ECOWAS CONSUMPTION: Products that go across the border in trailers to neighbouring countries because subsidised PMS is substantially cheaper here in Nigeria

REAL DOMESTIC CONSUMPTION: Subsidy on products actually consumed by Nigerians.

There is no doubt that we needed to remove subsidy. It had become excessive and unsustainable. But there was need for proper targeting of reliefs to blunt the inflationary impact of the removal. My guess is that fraud may be the dominant portion of subsidy. There is a limit to how many trucks can cross the border. So leakage to ECOWAS is probably 5% of subsidy or less. I don’t have data for the fraud component, but my guesstimate is that it could be not just the higher proportion, but dominant.  Khalifa Sanusi Lamido Sanusi did an excellent work in a paper he presented at the 2022 Kaduna Investment Summit demonstrating clearly the likely dominance of fraud in our fuel subsidy payments. Below are four important points he made:

As at 2019, official data was that Nigeria imported 40 million litres of PMS per day. This grew to 66 million litres by 2022, a 50% increase in just two years. This was a period when growth in number of vehicles was minimal.

By these 2022 figures, Nigeria allegedly consumed 6 litres per car per day, implying every vehicle travels an average of 40 km. per day. It is doubtful that the real mileage is more than half of this figure

To move 66 million litres of PMS would require 4,000 tankers on the roads everyday. It is doubtful if we have more than half this number actually serving the petrol stations in Nigeria

Pakistan, a country with comparable population and GDP as Nigeria, consumes 21 million litres of petrol daily compared to 66 million allegedly consumed by Nigeria

Based on the foregoing, it is possible that 30%-60% of daily consumption is not real but fraud. Given how sizeable fraud was known to be, and considering the high inflation impact of removal of subsidy, it was of crucial importance to be deliberate and clinical in ensuring that increase in food prices and commuter transportation was moderated and kept as minimal as possible. That wasn’t done and hasn’t been done.

CORRUPTION: These programmes, and indeed all programmes aimed at relieving the people, must be efficiently implemented and must be rid of our condemnable vestiges of corruption. The Lagos rail project is an example of corruption gone amok. The same contractor engaged by Lagos State built heavy rail for Ethiopia, conveying both passenger and cargo, at $5m per km. Lagos engaged the same contractor for light rail (passenger only) at about $54m per km, 10X. The Lagos Blue Line has now been running for a few months with zero impact on traffic congestion, zero impact on commuter convenience, zero impact on commuter costs. None. Zero Impact. Except for $55m per km. Imagine if this was an honestly and efficiently managed project.  Imagine what the impact would have been if even just 20% of commuters were now on rail rather than PMS. Every once in a long while, one stumbles on four coaches looking more like a Disney excursion for kids. This is corruption gone amok. The Federal Government rail projects implemented under Buhari by then Minister Rotimi Amaechi is a sad example of incompetence. Huge amounts running into billions of dollars was spent on laying rail tracks, not only to Northern Nigeria, bit curiously up to Maradi in Niger. These projects were executed with minimal local value added. The Chinese financiers flooded the project with imported material and labour, including low level labour available here. To make matters worse, the rail lines have had minimal impact on commuter and cargo transport. The management of revenues from commuters is so brazenly corrupt. These pro-poor remedial interventions must be transparent and must be efficiently implemented in a manner to deliver maximum value to us socially and economically.

CONCLUSION: I wish these recommendations and others were subject to rigorous assessment and implemented after necessary modification. Alternatively, they could have been discarded for the adoption of superior schemes. Levity in addressing the matters that would safeguard the quality of life of the poor and vulnerable, together with unrestrained waste in continuing with business as usual, are part of the reasons for the existential threats we now face. Hopefully it is not too late to seriously consider reasoned options, even if they are not adopted as long as they supplanted with better options. What is indefensible is this lapse of 9 months with almost zero action on effective mitigation of adverse impacts on the poor. 

* Kola Ayeye is CEO of Growth & Development Limited, a financial services group committed to strengthening and expanding the middle class. The company has commenced the soft launch of a single-digit home ownership plan, and the grand launch is imminent. Previously he served as Executive Director AMCON and CEO National Bank.