Understanding Nigeria's Economic Challenges

The real challenge is not just about how much a Nigerian worker should earn. It's also about the kind of economy that surrounds that worker. How much value can this system help the worker create? And how much of that value can the worker keep after covering the basic costs of daily life?

In recent weeks, many people have talked about the Federal Government's performance. This includes economic stability, growth in nominal GDP, steady petrol supply, tax reforms, and how state governments are now more responsible for paying workers' salaries. Most importantly, there has been an increase in revenue shared among the three tiers of government. These points are often seen as signs of better economic conditions and improved governance.

But what hasn’t received enough focus is the social and economic cost of major economic decisions by this administration. This includes removing the petrol subsidy and floating the naira. Both actions have led to a sharp increase in the cost of living across Nigeria. This brings up another issue: the tendency to compare Nigeria’s petrol prices to those of other countries without understanding the full picture.

Nigeria’s Affordability Problem

Let’s look at a simple affordability comparison. With Nigeria’s minimum wage at ₦70,000 a month, and assuming a standard workweek, a worker must work for about three hours to earn enough to buy one litre of petrol at ₦1,300. By comparison, a worker in South Africa needs about 50 minutes, 10 minutes in Germany, and just 6 minutes in the UK.

This comparison shows living conditions better than just looking at petrol prices. We cannot judge fuel prices alone without considering the economic environment where people earn and spend their money. A worker in Germany, South Africa, or the UK may pay more for petrol, but they earn higher incomes, have better electricity supply, and enjoy more efficient public transport.

Thus, the question is not just whether petrol in Nigeria is cheaper or more expensive in dollar terms. It’s about how much of a worker’s income goes to buying it and how fuel costs affect prices of transport, food, and other essentials. This also shows how logistics costs influence prices of goods and services.

The same idea applies to wages. Comparing Nigeria’s minimum wage to wages in other countries without looking at productivity, purchasing power, and the overall cost structure can be misleading. Just because a wage is higher doesn’t mean living standards are better. The same goes for fuel prices.

Removing Support from a Weak Economy

In Nigeria, the removal of the petrol subsidy and floating the naira worsened this situation. These changes took away important price supports from an economy where the informal sector is a major source of jobs and income.

This is important because much of the informal sector does not have the same support as larger businesses. Small traders, transport operators, and farmers rely heavily on petrol-powered transport and electricity, which are influenced by fuel prices and exchange rates. The subsidy and managed exchange rate were not designed specifically to help the informal economy, but they did provide necessary price support.

Under these conditions, raising the minimum wage may be needed, but it won't be enough. If wages go up while essentials like electricity, transport, and food also rise, workers may not feel much difference in their real earnings. They may earn more naira but gain little real value. The improvement is just on paper.

Taking away these supports without boosting the economy's productive capacity and social infrastructure put a lot of costs directly on families and small businesses.

The naira's drop increased the cost of imported goods, including fuel and raw materials. Higher fuel prices then raised transport and production costs. This pressure spread through the economy, cutting profits, raising consumer prices, and reducing real wages.

The main issue is not just whether to keep the subsidy or manage the exchange rate. The real question is whether the economy has enough capacity to handle these changes without putting too much burden on the people and businesses that can least afford it.

Why Raising the Minimum Wage Alone Won’t Work

This is why Nigeria's affordability crisis cannot be fixed simply by raising the minimum wage.

While increasing wages can help families in the short term, wages are just claims on what the economy produces. If we raise these claims without increasing productive capacity, we may only see a nominal rise in income while the cost of living stays high.

The important question is: how much value can the economy help a worker create, and how affordably can we produce and deliver essential goods and services?

Countries like Germany, South Africa, and the UK have workers who enjoy higher wages, but they also have better productive capabilities, reliable infrastructure, and more job opportunities.

The key policy goal should be to improve the economy’s ability to create, move, and keep wealth. This means providing reliable and affordable energy, better transport and logistics, more productive firms, and more job opportunities. We also need to reduce losses in agriculture and distribution, improve security, and ensure better public administration and government accountability.

In Nigeria, the opposite is happening. Electricity is still costly and unreliable, forcing many families and businesses to pay for both grid and alternative energy. Taxes and fees keep rising, adding pressure on already tight incomes. Healthcare and education costs are climbing too. Many people rely on private transport services that directly feel the impact of rising fuel prices.

Transport shows how quickly structural costs can affect the economy. Higher petrol prices do not just affect drivers. They increase commuting costs and the price of food and logistics, which then show up in what families pay.

This is also true for other areas of the economy. Unreliable infrastructure raises production costs. Insecurity makes farming and transport risky. Poor storage leads to waste. Limited access to finance holds back businesses from growing and hiring more workers. Administrative challenges add to costs for both businesses and citizens.

In this situation, a higher minimum wage may be needed, but it won’t solve the problem. If wages go up while costs for essentials like electricity, transport, and food also rise, workers won’t feel the gain. They may have more naira but not much real value. The change is just on paper.

The real goal should be to build the economy's capacity to create, move, and keep wealth. This needs reliable energy, better transport, more productive firms, more jobs, less waste in agriculture and distribution, improved security, and stronger government accountability.

Affordability is not just about how much people earn. It also depends on how efficiently the economy produces and delivers what they need. A strong local production base is crucial for better productivity, reducing reliance on imports, and improving affordability across the board.

The real challenge is not just how much should a Nigerian worker earn? It is also what kind of economic system supports that worker, how much value can this system help the worker produce, and how much of that value can they keep after paying for the basics of life?