Update on the Nigerian 2025 Salary Increase
In our August 2024 article (click here) we stated that when the CFO asked Sharon to provide Finance with the forecast Nigerian salary increase percentage for 2025, she broke out in a cold sweat.
Here is an update on Sharon: She is now bedridden. The main cause of her deteriorating health condition is that all economists expected inflation to decline from June. This has not happened, and in fact, inflation increased in October 2024.
The increase in inflation in October was the result of food inflation increasing by 39.2% because of the floods and was also exacerbated by the petrol price increases. Nigeria’s historical inflation rates and the revised Axiomatic forecast for the remainder of 2024 and 2025 are detailed in the table below:
Our average 2025 inflation rate has increased from 23.8% to 28.5%.
When determining an equitable salary increase, we would normally take the projected inflation rate, add the historic real salary increase and with a significant degree of confidence, recommend a salary increase for 2025. This is not possible in Nigeria.
We reiterate the advice contained in our August article that a feasible and reasonable option may be to introduce an Inflation Allowance (“IA”). The mechanics of a possible IA? methodology can be summarised as:
a. The trigger would be 30.0%.
b. If inflation in any given month is greater than 30.0%, the difference between 30.0% and the prevailing inflation rate would be paid to the employee as a monthly IA. The calculation of the IA would be done on Basic Salary.
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c. If inflation is equal to or below 30.0%, no IA is paid.
d. If our inflation forecast is correct, the IA would be paid in January, February and March 2025 but would then cease.
e. If the company’s increase cycle commences in April, a 28.0% trigger level could be considered.
As we stated in our previous article, the salient advantage of an IA is that employees will realise and appreciate that the employer understands the increasing and volatile cost of living pressure and is prepared to assist. Further, if inflation remains high, the employer will bear some of the pain.
This decisive action will hopefully furnish the company with a tangible Return on Investment because it will reduce staff turnover, improve the EVP and mitigate the high cost of recruiting new employees.
Most importantly, the IA ensures that high fixed employment costs are not entrenched in perpetuity; rather, only some temporary relief is afforded to employees.
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