African Payroll: Nigeria cost of living

African Payroll: Nigeria cost of living

A trifecta of 3 headwinds for employees

Many of our international payroll clients have heard mutterings of dissatisfaction from their Nigerian employees regarding the escalating cost of living and more importantly, that recent economic events have eroded their disposable income. Are they correct? Yes, they are.

Three recent events have had or will have, a significant impact on the relative disposable income of employees in Nigeria. We will deal with these three events in no particular order of importance.


Inflation in Nigeria has remained stubbornly high and has recorded levels of more than 20.00% since July 2022.

We expect inflation to average 28.0% in 2023; the highest level since the 1990’s. This is a significant increase from the 18.0% recorded in 2022. Of particular significance is the fact that our model is forecasting that inflation will average 24.5% in 2024 – so, high inflation is not a temporary or passing problem.

While inflation should have been incorporated and considered in the 2023 salary increase granted to employees, most companies granting increases at the beginning of the year would have anticipated that inflation would decline during 2023, and thus lower salary increases were granted. Considering that inflation has continued an increasing trajectory, employees have been given a negative real salary increase which has eroded their disposable income.

Petrol Price Increase

Nigerians have benefited from cheap petrol due to subsidies that were introduced in the 1970s. In fact, Nigerians regarded the subsidy as a direct benefit of the country’s oil wealth. Recently the government estimated that the petrol subsidy cost them circa. US$ 10 bn in the previous fiscal year.

In President Bola Tinubu’s first address in late May 2023, he abolished the subsidy.

The immediate effect was that the petrol price increased from N254 in April 2023 to around N535. The Independent Petroleum Marketers Association of Nigeria and the Association of Distributors and Transporters of Petroleum Products have denied that they plan to increase the petrol price to N700 per litre in July 2023.

The more immediate impact of the loss of the petrol subsidy is that employees are paying more for transport to work. Anecdotal evidence suggests that transport fares along the Mile 2-Iyana Iba route cost N200 before the government announced the subsidy removal, but the bus fare now costs N400.

The higher transport costs will further erode the disposal income of employees and ominously, one can expect the higher petrol prices to increase inflation (and especially food prices) in the coming months.

Currency Depreciation

Over the last year, the Nigerian government has employed various measures to manage its currency, the naira, including pegging it to a specific exchange rate. This naturally created two exchange rates, the official and the black market.

A new policy announced by the government in June 2023 was that the value of the currency would be set by market forces rather than the Central Bank. This resulted in the naira rocketing from 477 to US$ on 13 June, to 750 on 14 June; a one-day depreciation of 57.0%.

As of 13 July 2023, the naira was trading at 775 to the US$ while the black market rate was 805. We do anticipate that the naira will strengthen over the next months and close 2023 at around 725. However, the hope is that the free float of the currency enables companies to repatriate dividends and profits from Nigeria in the imminent future.

There can be little doubt that the depreciating currency will increase the price of imported goods and concomitantly inflation. We expect inflation to reach as high as 35.0% in the coming months which may precipitate the Central Bank of Nigeria increasing official interest rates. The consequence is that employees will incur higher borrowing costs in addition to carrying the burden of increased inflation.


There is little doubt that the trifecta of events has decreased the disposal income of Nigerian employees and may continue to erode it further in the coming months.

Our recommendation is not to do anything hurried and/or rash. Rather, wait for additional incoming data so that a cogent decision can be made.

One possible remedy could be the introduction of an Inflation Allowance which floats with the prevailing official inflation rate. This can be communicated to employees which will demonstrate that the company is aware of the rising costs but where:

    • any additional remuneration will be based on official statistics; and
    • the methodology will be scientifically formulated; and
    • the additional remuneration will not be perpetually entrenched in the salary bill.

About Axiomatic

Axiomatic currently runs both insourced and outsourced payrolls in 44 African countries on a cloud-based platform that is ISO27001 accredited.

In addition, we have significant experience integrating the payroll platform with SuccessFactors, Workday, and other related systems.

Should you wish to know about our offering, please:


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