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Decent wages will loosen Nigeria’s poverty-inequality traps

By Olu Fasan

FEW issues have dominated global policy discussions like poverty and inequalities. In 2014, the French economist, Thomas Piketty, raised the tempo and tone of the debate with his book Capital in the twenty-first century, which lays bare in granular detail the nature and causes of inequalities. Last week, the Institute for Fiscal Studies in London launched a five-year review, chaired by Professor Angus Deaton, winner of the 2015 Nobel Prize in Economics, to undertake the “most comprehensive scientific analysis of inequalities yet attempted”.

Paradoxically, while the world is talking seriously about poverty and inequality, Nigeria is not!  Well, it’s paradoxical because Nigeria is “the poverty capital of the world”, with the largest number of the extremely poor; it’s also one of the world’s most unequal nations, with, according to the World Bank, “increased clustering in the highest and lowest deciles”!

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Over the years, Nigerian politicians have been in denial about the issue or paid lip service to it. In 2014, when the World Bank listed Nigeria as one of the five poorest countries, President Goodluck Jonathan was so livid, he retorted: “If you talk about ownership of private jets, Nigeria will be among the first ten countries, yet they are saying that Nigeria is among the five poorest nations.” He added that “the challenge of this country is not poverty, but redistribution of wealth.” Let’s leave aside the intellectual flaws of equating a nation’s wealth with the number of its private jet owners and conflating poverty and inequality, which are separate, albeit related, issues. Even if, as Jonathan said, the problem is the “redistribution of wealth”, whose job is it to fix it?

The Nigerian Constitution is clear on who should. Section 16(2)(c) says that the State “shall direct its policy” towards ensuring that the economic system is “not operated in such a manner as to permit the concentration of wealth in the hands of few individuals or of a group”.

In other words, the State must not engender wealth inequality. But successive Nigerian governments have allowed wealth to be concentrated in few hands through crony capitalism, protectionism and, of course, outright corruption.

Former President Olusegun Obasanjo once boasted that he created 25 billionaires during his presidency. But how? Well, by awarding oil blocs to cronies, creating industrial monopolists and oligopolists and granting waivers of import tariffs to favoured individuals. Read former Finance Minister, Dr. Ngozi Okonjo-Iweala’s book, Reforming the unreformable, for insights on how some people became billionaires overnight after being granted tariff waivers to import rice. Read, too, her other book, Fighting corruption is dangerous, to see how some became very rich through “oil subsidy fraud”. So, the Nigerian state has deliberately created and entrenched inequality by encouraging cronyism, rent seeking and corruption.

But apart from cronyism and corruption, poverty and inequality are rife in Nigeria because of poor wages. Think of why wages matter. Wealth comes from two sources: income from labour (wages) and income from capital (rent, dividends, royalty etc). Income from capital, that is, from investments, properties, etc. – what you own – is the major and most sustainable source of wealth.

For instance, property ownership is the most powerful tool for the poor to ascend the economic ladder. But unless one inherits wealth, the only means, initially, of acquiring capital assets is through wages. If you don’t earn, you can’t own! Now, wealth inequality occurs, Piketty argues, when some earn excessively huge salaries and accumulate capital, while the vast majority earn too little and own too little, even nothing!

Doesn’t that sound familiar? In Nigeria, a senator earns more than N8.2 million per annum. It was recently reported that outgoing senators and members of the House Representatives would collect N23.7 billion, while incoming ones would pocket N4.7 billion “welcome package”. Such excessive incomes and “welcome/exit” packages exist for political office holders nationally and at the state level. Yet the current minimum wage is N18,000 per month, and many workers are not even paid for months. Consumer demand is so low in Nigeria because people’s purchasing power is low and, of course, because wages are low. If most Nigerians can’t even afford basic necessities, how can they acquire capital assets to escape the poverty and inequality traps? How many own a house, for instance?

Of course, robust economic growth and productivity are the long-term solutions to poverty and inequalities. But civilised nations also use income support and a minimum wage, even a living wage, to reduce poverty and income inequality. For instance, the UK has a “living wage”, which rises regularly, and ultimately wants to end low pay!

In Nigeria, the Constitution says, in section 16 (2)(d), that the State should provide “reasonable minimum living wage”. A “living wage” is “a wage that is high enough to maintain a normal standard of living”.

While the newly introduced minimum wage of N30,000 per month is welcomed, it’s certainly not a living wage. Yet, the governors are fussing about it, while President Buhari is setting up one committee after another on its implementation. That’s wrong. They must make savings where savings must be made and pay the new minimum wage. That’s the least, the very least, Nigeria must do to tackle the scourges of poverty and inequality!

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