The Chair of Banking and Finance Department at the Nasarawa State University Keffi, Professor Uche Uwaleke, ha said that the increase in workers minimum wage will spur capital market growth.
Prof. Uwaleke, who stated this in a message to Blueprint explained that increase in savings resulting from the new wages would go into the capital market,
He said: “Such savings will likely flow into financial markets especially the capital market where uptake in government savings bonds, pension funds, mutual funds, assets of cooperative societies and all manner of collective investment schemes are expected to receive a boost.
“Expectedly, Nigeria’s pension assets under the Contributory Pension Scheme which is currently in excess of N8 trillion will grow from increased contributions bearing in mind that a majority of low-paid workers in Nigeria are below 49 years.
“According to the NBS “Pension Asset and Membership Data (Q2 2018) report, participants within the ages of 30 to 39 had the highest percentage composition closely followed by participants within the age bracket of 40-49 while those above 65 years had the least percentage composition,” he added.
The new minimum wage will also support the implementation of micro-pension scheme by PenCom which is expected to accommodate more contributors. Furthermore, the new miminum wage holds a lot of promise for financial inclusion in Nigeria.
The National Financial Inclusion Strategy was introduced in 2012 with the goal of reducing the number of Nigerians without access to financial services from 46.3 per cent to 20 per cent by 2020.
The new minimum wage increases the chances of the financially excluded to participate in the financial system. Through financial empowerment, it presents a huge opportunity to improve access to and use of smartphones/devices, which is a platform for improving financial services.
Just like in the United States where studies have found a strong positive correlation between rising wages and equities prices, a higher wage floor in Nigeria is bound to have a salutary effect on stock prices in Nigeria.
This is because with a rise in income, households have more money to spend. This growth in consumption could increase corporate sales and corporate earnings, especially if costs remain stable, potentially leading to an increase in stock market activity.
However, the first professor of the Nigerian capital market, noted that in spite of the overall impact of the wage increase on the financial markets, it is still missing a piece of the “post-recession growth trajectory.”
According to Uwaleke, with the growth in GDP still weak due in part to weak aggregate demand implementing the new minimum wage will go a long way to stimulate the economy.
“Given the continuous decline in economic activities evidenced by sliding GDP growth rates and relatively low inflation rate, the economy can absorb the new minimum wage without any significant knock-on effect on price levels and employment.
“In view of the nature of the current fiscal federalism in Nigeria which places the federal government at a dominant position with respect to revenue allocation, the federal government should explore ways of assisting sub-national governments to implement the new wage floor.
“In return, the federal government should demand from State Governments concrete plans aimed at improving States’ Internally Generated Revenue as well as enthroning transparency and accountability in the management of their finances,” he further said.