Nigeria’s recently approved new minimum wage of N70,000 and the supplementary budgets passed by the federal and state governments stand the risks of not being fully implemented as crude oil prices maintained a downward trend in the last few days following the release of an unimpressive job data for the world’s biggest economy, the United States of America (USA) and the fear that the US economy could enter a recession.
Reuters, Bloomberg, CNN and other global news outlets report how Asian, European and US stock markets tumble on fears that the world’s largest economy could enter a recession.
“According to the latest data in the US, employers added 114,000 jobs, below expectations for an increase of 175,000. The unemployment rate rose to 4.3 per cent, above economists’ expectations that it would be unchanged on the month at 4.1 per cent. According to the CME Group’s FedWatch Tool, traders are now pricing in a 71% probability that the Fed will cut rates by 50 basis points in September, up from 31% before the data was released and from 22% on Thursday,” News18.com reports.
The S & P 500 Index opened yesterday at 4.2 percent lower, according to Bloomberg. NASDAQ 100 declined by 5.4 percent while Japan’s benchmark Nikkei 225 dropped by over 12 percent, the biggest drop for the index since 1987, according to Newsweek.
Nigeria exported N1.31 trillion worth of goods to the United States of America (USA) during the first quarter of 2024, comprising N1.21 trillion crude oil sales and N102.96 billion non-oil exports. Should the US enter a recession, demand for an industrial input such as crude oil will dwindle, as this could make Nigeria have unsold cargoes.
The near-term implication of sustained declining crude prices is that it could gravely impact Nigeria’s earning potential from crude oil sales as well as the ability of federal and state governments to implement the 2024 budget.
“I suspect that there will be challenges down the road in implementing the national minimum wage, even as the actual number of workers on the government wage bill and the way it will affect the different categories of workers are not clear for now,” Vahyala Kwaga, senior analyst with Budgit Foundation, said.
“If crude prices decline noticeably, there will be less money to distribute among the states. If some states should get considerably low allocation, that could impede their ability to meet their 2024 recurrent expenditure,” Kwaga added.
On July 29, 2024, President Tinubu signed the national minimum wage into law ending weeks of back-and-forth negotiations between the representatives of the government, labour unions and the organised private sector.
Crude oil prices according to data provided by the Organisation of the Petroleum Exporting Countries (OPEC) and Business Insider declined by 7.6 percent from $82.77 per barrels on 22nd July 2024 to $76.49 per barrel on 5th August 2024. The current crude oil prices are below the 2024 budget benchmark of $77.96 per barrel.
Nigeria currently produces 1.7 million barrels of crude oil per day, slightly below the 1.78 million barrels per day in the 2024 budget.
It should be noted that the three tiers of government rely on crude oil earnings to finance about 40 percent of their annual projects. In 2024, oil revenue is expected to contribute 43.3 percent while non-oil revenue will contribute 56.7 percent.
According to the Nigerian Observer analysis, sustained decline in the prices of crude oil at the international market will greatly impair the ability of most state governments to pay the newly agreed national minimum wage.
Rivers State, with 31.9 percent, tops the states of the federation with the highest ratio of personnel cost to total expenditure according to the Analysts Data Services and Resources (ADSR). Oyo, 32.3 percent; Osun, 30.1 percent; Nasarawa, 27.2 percent and Kogi, 25.2 percent are the remaining states with the highest ratios of personnel cost to total expenditure.
The ratio of personnel cost to total expenditure, when combined with other important indicators, showed that Lagos, Imo, Zamfara, Kaduna, and Ebonyi are the top five states in the country with ability to pay the new national minimum wage.
The above states are followed by Sokoto, Niger, Borno, Gombe, Ogun and Edo states.
‘’This analysis shows that states with relatively high ability to pay are those currently having low personnel expenses to total expenditure ratio, low personnel expenses to revenue ratio, especially, IGR, low debt profile, and relatively high elasticity of personnel costs contribution to future revenue and expenditure,’’ ADSR said.
Further, Nigeria paid $2.19 billion for debt servicing from January to May 2024, increasing the items that could be impacted should the situation worsen.
