Dear Subscriber,
More pay, less goods
(Baba Tolu walks in after a long day to meet Iya Tolu dancing excitedly in the kitchen)
Iya Tolu: Thank God my husband has been paid, owo ti wa o! Finally! Now we can buy that new freezer, stock up on food, and even get some asoebi for the wedding next month!
Baba Tolu: Asoebi? freezer? Iya Tolu, what the hell are you talking about?
Iya Tolu: Didn’t they pay you the new minimum wage? N70,000 plus arrears since July! We’re rich now!
Baba Tolu: Arrears? Can you arrears away the price of petrol? Is it arrears that will bring down the price of yam, tomatoes, or even Maggi cubes? The only arrears I see are the arrears of debt I now owe. What’s the point of N70,000 if everything costs N100,000?
Iya Tolu: But… they gave you more money.
Baba Tolu: More money? Inflation took double! It’s as if we’re just running in place.
Iya Tolu: So, no freezer?
Baba Tolu: Freezer ke? Maybe we should buy fresh air while it’s still free.
Iya Tolu: Ah, minimum wage, maximum suffering.
Baba Tolu: You’ve said it all, Iya Tolu.
(They both sit quietly, the excitement from earlier completely drained away.)
(Tolu walks in)
Tolu: Daddy, guess what! NYSC has increased our allowance to N77,000! No more N33,000 suffering.
Baba Tolu: Ah, good! So, you won’t disturb me for money again. You can now take care of your own needs, abi?
Tolu: (grumbling) Well, about that… You know my transport from Oworo to Victoria Island is now N1,000 per trip? It used to be N500! That’s not even counting lunch or other small things here and there.
Baba Tolu: So, what’s your point?
Tolu: The point is, the N77,000 isn’t going far. With these rising prices, it’s like the increase just disappeared. I’m still broke, Daddy!
Baba Tolu: Hmm, so a rich corper, but still a poor boy?
Tolu: Exactly!
Money illusion, wage and price inflation
From the satirical illustration, we see money illusion, wage and price inflation at play. Iya Tolu’s excitement over her husband’s new N70,000 minimum wage quickly fades when she realizes rising costs have wiped out its benefits. Similarly, Tolu’s thrill over his N77,000 NYSC monthly allowance is dampened by soaring transport and living expenses.
This illustrates money illusion—the belief that more money equals better financial standing, which is false when inflation is factored in. While wage increases seem like a relief, wage inflation does little in the current economy, where price inflation dominates. As prices for food, transport, and fuel skyrocket, the increased wages can’t keep up, leaving workers still struggling.
Historically, wage increases, like the Udoji awards, occurred during periods of economic boom, supported by oil revenue. Today, with inflation, currency devaluation, and borrowing costs, the wage hike loses its intended value. Many Nigerians have already spent their increases on repaying debts, making it difficult to see any real financial improvement. In the end, rising prices have erased the perceived benefits of higher wages.
Informal employment will take a hit
While the formal sector may feel limited effects—given that most corporates already pay more than the new minimum wage—the informal sector tells a different story. As of Q1’24, informal employment made up a staggering 92.7% of total employment in Nigeria. This sector is far more sensitive to wage hikes and will bear the brunt of these adjustments. The burden on the informal businesses, heightened by high borrowing costs (32–34%) and soaring PMS prices, will present two difficult choices: absorb the rising costs or pass them on to consumers. In a worst-case scenario, the burdens are absorbed, due to weak consumer spending, leading to potential layoffs and shutdowns. With unemployment already on the rise—reaching 5.3% in Q1 2024, up from 4.1% in Q1 2023—any slowdown in the informal sector could weigh on Nigeria’s overall GDP.
In this latest edition of Prism, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business and corporate strategy.
Enjoy your read!
