In 2008, Enhancing Financial Inclusion and Access (EFInA) conducted a survey that revealed that 52.5% of the adult population in Nigeria were excluded from financial services. It called attention to the level of financial exclusion in the country. The Global Financial inclusion index was later developed in 2011 to track global efforts towards financial inclusion. Following the wind, the CBN developed a National Financial Inclusion Strategy (NFIS) in 2012 with the ambitious goals of achieving 80% total financial inclusion and 70% formal financial inclusion by 2020.
The NFIS specifically aims to increase by 2020, the number of adults with access to payment services to 70% (from 21.6% in 2010), access to savings accounts to increase from 24.0% to 60%, and credit from 2 to 40%, Insurance from 1 to 40% and pensions from 5 to 40%, all within the same period. The targets were benchmarked around peer countries as well as other growth factors in the domestic environment. However, in the exposure draft of the NFIS released on July 6, 2018, the Central Bank of Nigeria admitted that Nigeria is not on track to meet the 2020 targets; which is less than a year away.
The Global Findex report 2017 show that with an estimate of 100 million unbanked adults, Nigeria joins six other countries including Bangladesh, China, and India as the top contributors to the global financially excluded of 1.7 billion. The number of adults with a formal bank account fell from 44% to 39.7% between 2014 and 2017. The number of adults with financial institution account fell to 39.4% from 44%, with a gender disparity of 51% and 27% for male and female respectively. The percentage of adults who saved money in a financial institution and those who borrowed with a credit card were 20.6% and 5.3% respectively. The number of those with mobile money account is still incredibly low at 5.6%, below the Sub-Saharan African average of 20.9%. According to EFInA, the total financially excluded is as high as 41.6% in 2016. It is therefore pertinent to draw lessons from successful countries with similar conditions in Latin America
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Source: Global Findex Report 2017, BRIU analysis
Latin American Countries such as Brazil, Panama, and Peru have made significant and consistent improvements in financial inclusion through the years from 2011 to 2017. In the period, Peru recorded an astronomic rise in the number of adults with accounts, from 20.5% (2011) to 42.6% (2017); whereas Panama recorded 24.9% and 46.5% in the same period. In the lead on adults with accounts in financial institutions, Chile (73.8%) and Brazil (70%) surpassed the Latin American average (54.4%) in 2017. For both countries, the gender and educational disparity in accounts-ownership show impressive records. The percentage of adults saving at a financial institution in Brazil and Chile was 14.5% and 21.1% above the regional average of 12.2%; and on access to credit via credit card in the last year, both countries recorded 26.3% and 30.9% – against a regional average of 20.8%.
In Brazil, the progress has been attributed to the expansion of the national correspondent banking networks, growth in microfinance and cooperatives as well as targeted conditional transfers to increase the income levels of the low-income workers under the Bolsa Família program. The correspondent banking model permits accessible retailers such as food vendors, gas stations and drug stores to act as intermediaries for basic financial transactions, thereby bridging the gap between formal and informal financial structures. The Brazilian government also promoted financial literacy and adapted regulation of financial services to the needs of the underserved low-income groups. In Chile, it was a sincere commitment to the Maya Declaration in 2011 – to which Nigeria is a signatory. The Chilean government introduced an electronic payment system for transfers of state benefits, launched an extensive financial education program for beneficiaries of state transfers and developed a complementary financial inclusion survey. A state bank, Banco Estado, was established with a defined financial inclusion strategy to drive efforts on achieving financial inclusion.
All that notwithstanding, some progress have been made by both policymakers and stakeholders to improve access to financial services in Nigeria. The Brazilian correspondent banking is similar to the Agent banking in its early stages in urban centres across the country; while the Bolsa Família is to the National Social Investment program (NSIP). More so, The CBN and the Nigerian Communications Commission (NCC) signed a memorandum of understanding in other to facilitate mobile money operations on the premise that more adults in Nigeria owned phones than bank accounts. This initiative has given birth to a synergy between commercial banks and telecoms operators as well as enabling the development of financial technology (FinTech) operators such as Paga, Quickteller, Paydirect, Alert and eTransact. The collaborative effort between the CBN and the NIBSS to create a regulatory sandbox which allows FinTech start-ups to test solutions under controlled environment has enabled a start-hub conducive for creating sustainable businesses and expansion of the FinTech space to reach the last mile. The agent banking model that incorporates trading businesses as transactional outlets of banks and the most recent Payment Service Banks which is a model of the Non-Bank led financial inclusion strategy is also the efforts to serve the unbanked.
The direction of policy strategies seems to be towards leveraging ownership of mobile phones and access to the internet which happens to be the strongest improvement area for African countries according to the Global Findex report, 2017. Therefore, a combination of policies that encourage participation within the mobile money space and an expansion of the agent banking model into other states of the federation would go a long away, noting that most of these models are still being piloted in urban centres where the incidence of financial exclusion is less critical. The electronic payment method should be deployed in the conditional cash transfer schemes of the NSIP which is still done in cash at some local levels. Effective financial education for the most vulnerable cannot be overemphasized. Since the drive on financial inclusion in 2008, only about 10% declined has been achieved, amounting to 1% per annum on average. There is still a long way to go; all hands must be on deck.
The labour theory of value argues that the value of a good or service derives from the units of labour that produces it. It describes labour as the source of value. True or false, it highlights labour as an important factor of production or economic agent.
If increasingly, workers cannot afford the product of their labour, whether by outright exploitation or by worsening economic conditions – which confiscates income, it provides grounds for economy-wide wage review. Minimum wage is legislation on the lowest remuneration payable by employers to employees. On the side of the worker, it is the wage below which employees should not offer their labour. Typically, labour exploitation, rising inequality and poverty are reasons for minimum legislation.
The expectation is that legislation on the minimum wage payable to workers would improve their standard of living, reduce poverty and inequality. A satisfied worker would be more efficient at work, and output would increase. But the standard representation of the labour market shows that the application of minimum wage disrupts the efficient working of a competitive market, resulting in a glut in unemployment. Increasing the minimum wage above the market clearing level would increase the wage bills of firms. And as firms adapt, they reduce employment or transfer the cost to consumers of goods – the inflationary effect of minimum wage. However, the evidence is mixed as to how minimum wage affects employment and therefore poverty as empirical studies show contradictory evidence in different economies. In clear terms, minimum wage increases the wages of those who retain their jobs and reduces the benefits of those who lost theirs. Therefore, the effect on poverty overall is ambiguous.
What we know about minimum wage
- The effect of minimum wage varies from country to country depending on the pre-existing labour market condition and the economy at large.
- High unemployment can condition the average wage payable to workers; the effectiveness of minimum wage and black-market in the labour market.
- Minimum wage increases the supply of labour, if not demand.
- Rising misery level influences/necessitates a review of minimum wage
The case for Nigeria
Minimum wage negotiation in Nigeria is never gentlemanly; it is often a brawl between the government and the labour union degenerating into a nationwide strike. In 2010, the Nigerian Labour Congress (NLC) had organised a nationwide protest for an upward review of the minimum wage which at the time was N7, 500 and did not reflect the realities of the time. It ended in a one-day strike following the Belgore committee report and a minimum wage of N18, 000 (a deviation from the N52, 200 demanded) was approved by the National Council of states. Before then, the Wage Review Agreement of 2000 which outlined the stages of wage review by 25 percent in 2001 and 15 percent in 2003 on the existing wage was abandoned; only 15 percent review was made in 2007 increasing the value to N7500. In 1981, Hassan Sunmonu began an agitation for minimum wage review to N300. The agitation culminated in a nationwide strike under the Shagari administration. The eventual settlement was at N125, less than half of the sum demanded.
Today, the agitation is strongest; perhaps the forthcoming elections present the opportunity to back the political class into a corner. The agitation began to brew since 2016, when the NLC leaders, in a press briefing, called for a review of the minimum wage to N56, 000 on grounds that the five-year periodic review as laid out in the Belgore Committee report is long due since the last one in 2011. The scenario as it plays out in Nigeria leaves the discerning mind wondering why governments – federal and states – are vehemently antithetical to wage reviews as against what obtains in other climes where governments and political parties debate the implications and willingly act on the outcome of the minimum wage reviews to curb labour exploitation in industries.
In the United Kingdom, the Low Pay Commission advises the government every October about the future of the national minimum wage. In 2015, setting a wage floor was a key agenda in the demands of the Social Democrats (SPD) to enter a coalition with Merkel; this led to the establishment of a minimum wage commission, Mindestlohnkommission. In an ideal situation, it is the organised private sector and the manufacturers association that should decry inability to pay a wage considered too high; but a good majority of the private employers who are constitutionally obliged to pay the minimum wage already exceed it. The implication is that it is the government, in our case, who is the chief exploiter of labour.
The major grounds for strong resistance against a wage review especially by state governments include the inability to pay, inflation and the unemployment implication. A number of state governments have openly declared their inability to fulfil a reviewed wage and evidence are available about states who are unable to pay the current wage against a backlog of arrears. But should governments’ inability to meet its own obligation excuse mass immiseration? The situation is an indictment on the size of governments and its slack maximizing bureaucracy. In the light of the current high unemployment, downsizing is not much an option. State governments must be efficient in allocating resources and ingeniously increase revenue streams.
The inflation argument is that the quantum of money to raise the minimum wage would cause an increase in price level. Firstly, it is not stylized to argue that a wage review would increase unemployment and inflation simultaneously – Philips curve. Minimum wage reviews are ideally targeted at the low-income group to increase welfare and reduce inequality. The marginal propensity to consume (MPC) of low-income earners is high for an increase in income. Therefore, this consumption spending due to the increase in wage would increase aggregate demand, output and growth, such that the inflation expectation may not hold. Again, in the light of the Minimum wage Act, the review would not affect firms with less than 50 employees, part-time workers, workers on commission, and seasonal employment. Since a significant number of the private sector employers pay above the minimum wage, one can argue that the review affects only a relatively small group of workers, such that any inflationary implication is infinitesimal.
The unemployment implication argues that an increase in wages would increase the wage bills of firms. But I have argued above, firms already pay higher wages and are not significantly affected by the review. And since the minimum wage act as pointed out excludes employers in the informal sector, and SMEs all of which constitute a major employer of labour, the unemployment effect in our case may be well exaggerated – limited only to civil servants. For instance, the survey conducted in 2013 by Small and Medium Entreprises Development Agency Nigeria (SMEDAN) and Nigerian Bureau of Statistics (NBS) revealed that the total number of MSMEs stood at 37,067,416 (Micro: 36,994,578; Small: 68,168; and Medium: 4,670).[1] The total number of persons employed by the MSME sector as at December 2013 stood at 59,741,211 (Micro: 57,836,391), representing 84.02% of the total labour force and contributing 48.47% to nominal GDP. Interestingly, 97.74% of the total number of Microenterprises is Sole proprietorship.
Conclusion
I have argued here that the direction of the debate on minimum wage is not founded on sound economic principles, but on the emotions of those who pay the piper. In fact, the resolve to pay N27, 000 as minimum wage by the government reduces to N900/day and is insufficient per se given the economic realities. This N900/day at N360 per dollar only slightly exceed the extreme poverty threshold of $1.90/day We have recently learned that South Africa would pay the equivalent of N126, 480 as minimum wage in 2019. Another rather interesting aspect of the matter should be the insufficiency of the minimum wage act to reflect the flexibility in the work environment and changes in the future of work. The work environment is not as rigid as it used to be; more and more people are engaged in freelance employment, contract jobs, commission-based employment, and part-time employment. The Act, as it excludes these groups, creates room for labour exploitation.
[1] Note that Micro and Small enterprise is defined by the number of firms employing between 1-49 employees
