The idea to reduce wages and similar earnings in the public and private sectors across board in Nigeria by 50 per cent, which I am suggesting, sounds crazy even to me. As a result of decline in earnings from crude petroleum export, Nigeria’s public finance is distressed. The clear manifestation of this is the inability to pay wages to those many governments pay monthly in Nigeria. However, I am wondering the implications of reducing all wages, allowances, emoluments, pensions and similar payments by 50 per cent. My purpose here is academic.
How could the economy respond to such reduction? I am interested in learning and urge better informed people to enlighten on that. Before then however, there are some dilemma requiring direction on, assuming this idea was to be tried. In the first case, how do you do that? By administrative fiat? By an act of parliament? How will the private sector be committed to such reduction? Can that be done by law or persuasion as part of patriotic, national emergency? There is a possibility that some persons may not yet appreciate the enormity of the challenges confronting Nigeria. Some may even say the economy has always been in emergency. My take is that there is very significant worsening of the situation of the economy and the wellbeing of many, and still increasing number of Nigerians. In Owerri, the capital of Imo State, where I work and reside, I perceive a collapse of the economy. I see the gradual halting of the circular flow of income.
For a state that depends significantly on the federation account, such that before now, even traders in the markets in Owerri knew when civil servants were paid by the increased demand for consumer goods, the inability of government to pay salaries and pensions is evident. In addition to the federation account receipt, internally generated revenues including taxes also count, but comparatively low The next source of funds inflow into the state is remittances from outside the state (in and outside Nigeria) as well as investors and visitors from outside the state. The level of remittances and investments also decline. These represent the case with current Nigeria economy for most states. My observation is that there are currently reduced transactions and exchanges. My thinking is that it has become urgent to once again expand and accelerate the flow of income.
That is why I am asking if it would help if in the state of severe economic emergency we are in, all earners of wages, incomes, honoraria, pensions, allowances, name it, from the President, the chief executives, down to the least paid, accept that we reduce across board for everyone in the public and private sectors by 50 per cent. But I wonder, what will be the implication of this. I imagine the first will be that some (if not all states) will be able to pay something to those they should pay, as against the present situation of zero payments. That will help the flow of incomes. Some person will say no to this, but it is only a debate I want to learn from and I believe there are other persons who will want to engage in this discourse. Some will say start by recovering stolen public funds.
That is also important, but I believe we need to address the declined available national earnings and manage emoluments sustainably. We may even decide that all such recovered funds should go exclusively to capital investments that have potential for generating multipliers and expanding the economic possibilities, especially on projects that can sustainably generate employment. My next expectation would be that prices of some goods and services may fall, but perhaps by less than 50 per cent. Which means in real terms people will be poorer, if incomes fall by 50 per cent but average prices of goods and services fall by less than 50 per cent.
Is that a reasonable expectation as an outcome? The next is that this would be a sacrifice by labour, but what about capital? Would we expect that earnings by capital will also fall? Will this therefore disadvantage labour (wage earners), while capital is advantaged? How will that impact on interest rates, exchange rates, inflation, and investment? So far the decline in federation account receipts has been less than 50 per cent. Therefore will an across board reduction in wages by 50 per cent leave something more for capital expenditure? Will the above encourage consumption of locally produced goods and services and therefore create local jobs and dampen the frightening unemployment levels in Nigeria? Will this help with reducing poverty and crime? •Prof. Nwajiuba is the Dean, School of Postgraduate Studies, Imo state University, Owerri.
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