Africa: Are Minimum Wages Desirable?

Africa: Are Minimum Wages Desirable?
Blacks should not focus on minimum wage, instead we should focus on building businesses

AFRICANGLOBE – After protracted strikes and pressure from trade unions South Africa is debating imposing a national minimum wage.

Other African states are also seeking to extend mandatory pay scales to improve worker livelihoods and curb poverty. But the issue is tricky because unemployment rates in Africa are sky-high and most workers are not formally employed. Minimum wage laws currently affect too few people.

Economists are divided. Some argue that a minimum wage will make workers too expensive and unemployment and destitution will rise. Others argue that higher pay scales will not only curb poverty but will boost consumption; and the benefits of an increased disposable income will extend more widely to salaried workers and their dependents.

Unemployment rates in Africa vary from 0.6% in Rwanda to 31% in Mauritania, according to 2014 International Labour Organisation (ILO) estimates. Many analysts argue that these jobless figures are much higher. As many as nine in ten of Africa’s workers have informal jobs, according to this UN body.

Nigeria has had a minimum wage since 1981. Shortly after the inauguration of Nigeria’s new president, Muhammadu Buhari, in May, the Nigeria Labour Congress (NLC), a trade union federation, made calls demanding a hike in the national minimum wage to $452 a month from the $90 set by the country’s preceding president, Goodluck Jonathan.

Nigeria’s unemployment rate hovers at 23.9%, according to 2011 figures from the national statistics office. The share of the country’s population living on less than $1.25 a day is a staggering 68%, according to 2010 World Bank figures. Yet despite having a minimum pay rate for 34 years, the average Nigerian worker is now four times poorer than he was when President Olusegun Obasanjo first revised the minimum wage in 2000, according to a recent editorial in the Daily Independent newspaper.

Nigeria and 14 other states in Africa have national minimum wage laws and 26 countries have imposed sectoral minimum pay scales, says a 2012 ILO report. But research showing that minimum wages curtail poverty or raise living standards in Africa is inconclusive.

A paper published in 2001 in the ILO’s International Labour Review found a link between poverty reduction and income floors. Countries that implement minimum wages are often more committed to developing social policies targeting the poor, wrote Catherine Saget, author of the paper.

Africa’s share of world poverty increased from 11% in 1981 to 27% in 2005, according to ILO reports. Nearly half of sub-Saharan Africa’s population was surviving on less than $1.25 a day in 2010, say the latest figures from the UN’s Millennium Development Goals project.

Imposing a national minimum wage is not part of the public discourse in Mozambique and Angola. Both resource-rich countries have posted impressive growth in recent decades, but the poor have not shared in these gains and jobs remain limited. Both countries have regulated pay scales in different sectors.

In Mozambique, most young workers are “forced into marginal jobs in the informal economy” in urban areas and into subsistence agriculture activities in rural areas, “with little prospect of decent employment”, Theo Sparreboom and Anita Staneva, labour economists, write in a 2015 ILO working paper.

Mozambique’s formal economy is small, argues Ruth Castel-Branco, formerly the ILO’s Mozambique coordinator for social protection. “It’s important to recognise that only 13% of economically active Mozambicans engage in wage labour on a regular basis and… within that group a smaller fraction would be covered by minimum wage legislation as it is set sectorally,” she says.

Minimum wages are set annually in Mozambique in 15 industries ranging from agriculture to the extractive sector. Kapenta fishers earn a low of $87 a month while financial sector employees make $233 a month, according to Mozambique News Reports & Clippings, a newsletter published by Mozambican expert Joseph Hanlon.

While the country has had a socialist-leaning government since independence in 1975, its record of worker protection has been limited, Ms Castel-Branco says.

Mozambique’s Labour Consultative Commission (CCT), comprising representatives from the government, unions and employers, negotiates statutory minimum wages. But Ms Castel-Branco claims it lacks independence and excludes workers in the informal economy in its negotiations.

In addition, the labour unions on the CCT lack the “empirical research capacity” to guide wage negotiations or to measure the economic impact of other worker protection policies, she says.

In Angola, up to 70% of the population lives below the $1.25 a day poverty line, according to 2010 figures from the country’s statistics office.

Annual minimum wage increases have ranged from 10% to 15% since Angola’s leftist government instituted minimum wage laws in 2001, but inflation was significantly higher than current rates. This means that rises in real terms have been lower, according to a May 2014 Economist Intelligence Unit report.

Although the ruling Popular Movement for the Liberation of Angola is steeped in Marxism, the government’s minimum wage policies are strict and limited, explains Lucy Corkin, a Rand Merchant Bank analyst. The majority of the workforce is occupied in the informal sector and has “no protection from unions as informal economy workers are not paying members”.

Labour protests, many of them violent, have escalated over the past few years in Angola, Mozambique and South Africa. Nearly 1,000 workers went on strike for three days in April at the Condor cashew-processing factory on the outskirts of Nampula, a city in northern Mozambique. Their demands included higher wages and social security payments.

What good could be achieved by instituting minimum wages when only 10% of Africa’s workers in the formal sector would reap any benefits? Plenty, according to Ms Castel-Branco and Gilad Isaacs, a researcher on industrial development at South Africa’s University of the Witwatersrand. A minimum wage could help curb poverty for a wider group of people dependent on this salaried labour, they claim.

“Some of the self-employed or unemployed are children of the employed and vice versa. Minimum wage therefore impacts on the whole household in any given community,” Mr Isaacs says.

Other policies such as social grants or occupational health and safety laws can improve working conditions for informal labourers who cannot benefit from a statutory minimum wage, Ms Castel-Branco says.

But some economists caution against the state setting a minimum wage. Many governments in Africa lack the skills and information required to set appropriate wage levels. Where governments have adopted these laws, such as in Mozambique and Angola, these pay policies only affect a minority of the country’s formal workforce, with unclear net effects.

An obvious approach might be for African leaders to develop strategies that create more formal jobs so that worker protection reaches more people. Unions may also want to extend their scope by trying to organise informal workers and represent them in wage negotiations. Until then, minimum wage laws offer slim pickings for the massive number of Africa’s workers who are jobless or outside the formal economy.

 

By: Kate Stegeman