Minimum Wage Negotiations and the Link to Food Inflation

By Paul Igbinoba

In my opinion piece last week entitled “Minimum Wage Negotiation: Need for a Pragmatic Approach”, I took the position that perhaps an interim wage award should be considered, to be reviewed in two years when the economy had stabilized . This is due to the high inflation that our economy is currently experiencing, largely due to a simultaneous strong devaluation of the naira and the largely successful removal of fuel subsidies. The inflamed passions during the minimum wage negotiations are likely to ignore the fundamentals of the economy and its ability to correct itself with the right monetary and fiscal policies in the short to medium term.

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As the government and other stakeholders grapple with the uphill task of steering the economy back to a stable trajectory, they should not lose sight of the hardships being endured by Nigerians, especially as a result of relentless inflationary pressures, albeit with a slight reduction in interest rates. of increase. In March 2024, headline inflation rose to 33.20 percent, up from 31.70 percent a month earlier. The month-on-month increase of 3.02 percent was 0.10 percent lower than the 3.12 percent month-on-month increase in February 2024.

However, the big elephant in the room remains food inflation, which increased by 40.10 percent in March, compared to 24.45 percent in March 2023. It is notable that month-on-month food inflation in March 2024 was slightly lower than month-on-month -month. Food inflation for February 2024 will decline by 0.17 percent, indicating a slowdown in food inflation in the coming months. However, the fact remains that food inflation is the main driver of inflation in Nigeria, which is certainly a serious cause for concern. This is further compounded by the fact that Nigerians spend more than fifty percent of their income on food. According to a 2019 survey by the Nigerian Bureau of Statistics (NBS), Nigerians spent 56.65 percent of total household expenditure on food, while the balance of 43.35 percent was spent on non-food items. This was confirmed by more recent data collected in 2023 by Picodi, an international e-commerce organization, which showed that Nigerians spend 59 percent of their income on food. A situation where about 60 percent of total Nigerian expenditure falls into one expenditure category, food, which increases by 40 percent monthly due to inflation, is indeed dire. This should certainly be a major policy challenge and is at the heart of the unions’ demand for an astronomical wage increase in the ongoing minimum wage negotiations.

“However, the fact remains that food inflation is the main driver of inflation in Nigeria, which is certainly a serious cause for concern.”

The way forward is to chart a strategy to arrest food inflation in the short to medium term, with the support of all relevant stakeholders, including the Federal Government, State Governments, especially under the auspices of the Nigerian Governors Forum, petroleum refineries and relevant branches. of the Nigerian Congress of Workers, especially the industrial unions in the oil and gas and road transport sectors, and petroleum marketers, especially the Independent Petroleum Marketers Association of Nigeria (IPMAN). The strategy here is primarily aimed at reducing transportation costs by using passenger buses, trailers and other high-capacity vehicles for transporting food products from the hinterland. It is encouraging news that the Dangote Refinery has reduced the price of its diesel to N1,000/litre, or even slightly below. Oil industry unions should be at the forefront of advocating for appropriate subsidy-free pricing of the petroleum products they produce, to reduce the burden on consumers and ultimately the costs of transporting and producing goods and services, especially food, to decrease.

The federal and state governments should work closely with petroleum sector organizations in the CNG subsector to accelerate the rollout and conversion of CNG-powered vehicles. The Tinubu government’s plan to inaugurate its CNG program on May 29, 2024, to mark its first year in office, is commendable, as is its overall plan to deploy 5,500 buses and three-wheelers, 100 electric buses and more than 20,000 conversion kits to purchase; and she advocates the development of CNG filling stations and electric charging stations. The recent launch of CNG-powered high-capacity city buses by the Lagos State government is also commendable.

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But in the short term, the focus should be on converting high-capacity vehicles to CNG kit for urban and inter-city transport services, including food transport vehicles. In this regard, an accelerated program should be launched to convert 5,000 to 10,000 high-capacity buses, trucks and trailers with CNG kits for intercity passenger and food transport, to mark the first anniversary of the Tinubu administration in May , with a project implementation period of three months. This essentially means bringing forward the purchase of the 20,000 CNG conversion kits and working with other stakeholders to accelerate the installation of CNG fueling stations across the country. The possibility and feasibility of a three-month, 24/7 emergency work schedule to achieve the CNG kit conversion target from 5,000 to 10,000 commercial vehicles should be considered.

The other part of the strategy to crash food prices is increasing the supply of food in the short term through programmed food imports to cover production shortfalls for key grains such as rice, corn and millet. Interestingly, the food items that the NBS believes are responsible for the March 2024 food price spike do not include grains, but the prices of these key food staples are still out of reach.

Crashing food prices is certainly an important strategy to reduce overall inflation, and should be a bargaining chip for the government in the ongoing minimum wage negotiations.