The European Central Bank (ECB) President, Christine Lagarde, recently alluded to the inefficacy of interest rates increases in managing inflation. She also proffered changes in antitrust laws to reduce incidences of price gouging. The First Deputy Managing Director of the International Monetary Fund (IMF), Gita Gopinath, stated in June that profit margins must sink in order to combat inflation, and she encouraged companies to absorb wage increases rather than pass them on to final consumers. “Sounds almost socialist, doesn’t it? But this contrarian thinking is what the times require, in my humble opinion,” she added.
Then there’s the issue of wage increases. The Nigeria Labour Congress (NLC) has demanded a minimum wage of N250,000 only. This is the wage that they propose should be paid to the cleaner and other casual workers – at least for those who work for the government at every level. As egregious as that sounds on the surface, the labour leaders were quick to remind us that minimum wage in Nigeria – up to the early 1980s – was an equivalent of $250. Today, at N30,000, it is less than $35, and many states have refused to pay! Still, where will the vast majority of employers in Nigeria, who are in the private sector find N250,000 as minimum wage? Even N100,000 is unaffordable, though we must now think about raising wages across board – even for artisans (yes, they need a much better bargain but usually don’t have representation).
Nigeria is being called to a higher level of thinking at these times. The reforms of the president Bola Tinubu administration so far is a call for serious structural adjustment and an opportunity for this economy to rise from the usual mediocrity that we have known over the years. However, the strident calls for higher wages across the board, is from those who are lucky to have jobs. The vast majority of unemployed, underemployed, hustlers, and casualised workers have no such luxury. Yet, they make up 85 per cent of Nigeria’s working population according to our last labour statistics! To make matters worse, wage increases are deployed by companies against the final consumer as higher wage expenses are simply and easily added to the cost of goods and services and the cost passed on to hapless consumers – often with a tidy premium. Continued demands for higher wages – where successful – leads to widening income disparities especially where nobody gets the back of artisans and social security is not robust in a society.
Let me reiterate the conclusions of Thomas Pickety in his 2011 book, “Capital in the 21st Century”. Poring over data of more than 200 years, the Nobel Laureate posited that rewards for labour have basically stagnated over a period of more than one century, while the reward for capital has simply skyrocketed. This has also been amplified and complicated by the substitution of labour by capital, through technology. We have seen the systematic digitization of everything. Most offices and factories now need perhaps a fifth of their staff strength of five, ten years ago. Covid-19 made it a lot worse. Humans have been replaced by machines. Artificial Intelligence and Machine Learning keeps firing on. ChatGPT can now write your CV in five seconds, and a proper business proposal in 30 seconds. Who needs a human being? And because of that – for countries like Nigeria – millions more of our people have become desperately poor. We cannot therefore toe the same line as developed countries. Our economy cannot be analysed the same as theirs and we cannot be administered with the same elixirs. This is not also a time to lock down government expenditure in the name of targeting inflation. Ours is an economy in dire need of growth and development. Almost every sector needs to be incentivized and injected with fillip for more productivity. Interest rate increases will certainly not work for us. Now is the time to think differently.
May I take this opportunity to reiterate some of the other strategies I had pushed in an earlier article in May 2023 regarding other ideas with slowing down inflation:
- Moral suasion and logic – Government must speak to inflation and persuade sellers to slow down on price increase so as to prevent an inflation spiral.
- Arbitrary wage increases must be discouraged even though with recent events a general wage increase has become a fait accompli so as to reduce poverty.
- Target food inflation (the chief driver of our inflation in Nigeria) by direct provision of rural infrastructure to aid farmers and reduce their costs.
- Better regulate the activities of middlemen especially in the agric sector, as part of Tinubu administration strategy on food security. Also hasten institution of commodity boards and exchanges and the policy limiting how much can be bought at the farm’s gate (as is done in South Africa among others).
- Better administration around government revenues will help haul in more money for infrastructure and close the income disparity gap. This will also reduce inflation as less money is available for frivolous purchases. Also, better fiscal discipline will help greatly for its signaling effect on the general economy.
- Effective policies around foreign exchange and importation. Citizens should be encouraged to buy local and this must start from the top. This will help stave off ‘imported inflation’ to a great extent, and keep the money ‘within the family’ – circulation within Nigeria.
- Manage and “reduce” expectations by media and public engagements that cleverly inform the public that things will get better.
- Promote work, savings, and investments – Increased labor supply, capital supply, productivity, and personal savings can help to reduce inflationary pressures. This is because the focus will be on general economic growth – a case of everybody getting lifted by the rising tide.
- Government must also do what it can to influence general price levels within its purview. This includes helping to lower energy costs by promoting alternative sources of efficient energy. Even in the US and other developed nations, energy cost is one of those costs that permeate into every other price increase, and a good excuse for spiking inflation. It needs to be wrestled down. Further, the government must urgently deal with insecurity which adds considerably to the final prices that consumers pay for everything. Reducing tariffs on essentials, promoting local production of basic essentials, and import substitution as well as a focus on infrastructure – like roads, rail systems and inland waterways – helps to reduce cost of transportation of people and goods, and thus sellers have fewer excuses to keep increasing prices in the name of recovering costs. Also, communication has been inefficient. Governments usually forget to link infrastructure to the lowering of inflation. They forget to ask citizens to take a medium to long-term view of their efforts as part of the expectation management strategy.