Identifier
Created
Classification
Origin
02ABUJA1162
2002-04-12 12:43:00
CONFIDENTIAL
Embassy Abuja
Cable title:  

NIGERIA: STATES'S INABILITY TO PAY WAGES RAISES

Tags:  PGOV ELAB EFIN PINS NI 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001162 

SIPDIS


E.O. 12958: DECL: 04/12/2012
TAGS: PGOV ELAB EFIN PINS NI
SUBJECT: NIGERIA: STATES'S INABILITY TO PAY WAGES RAISES
CONCERN

Classified by Ambassador Howard F. Jeter; Reasons 1.5 (b) and
(d).


C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001162

SIPDIS


E.O. 12958: DECL: 04/12/2012
TAGS: PGOV ELAB EFIN PINS NI
SUBJECT: NIGERIA: STATES'S INABILITY TO PAY WAGES RAISES
CONCERN

Classified by Ambassador Howard F. Jeter; Reasons 1.5 (b) and
(d).



1. (C) Summary. State governments are sounding the alarm
that they can no longer pay civil service salaries and
retiree pensions. When oil prices and revenues were high in
May 2000, civil servant wages were more than doubled.
However, federal revenues allocated to the States have
dropped in tandem with oil price declines, and many States
complain they are unable to meet their wage bills. However,
many observers, including the Central Bank, believe that the
States' fiscal irresponsibility is the primary cause of the
current wage crisis. Meanwhile, civil servants across the
country are threatening strikes if the problem is not
resolved soon. A civil service strike would be a big blow to
the Obasanjo Administration. End Summary.


-------------- --------------
Lower State Revenues Plus Higher Wages Leads to Trouble
-------------- --------------



2. (U) In May 2000, State wage bills more than doubled when
President Obasanjo increased the minimum civil service wage
of both the States and Federal government from N3,500 to
N7,500/month (USD 64). For over a year-and-a-half, high
world oil prices allowed sufficient funds to flow from the
Federal government to the State capitals. States did not
have to juggle priorities to meet higher payroll costs.
However, since November 2001, lower oil prices and OPEC quota
cuts have reduced federal allocations to the States by nearly
one-third. Monthly allocations to State governments fell
from N145.5 billion in October 2001 to N116.5 billion in
November and December 2001 to N100.03 billion in January

2002.



3. (U) As a result, employees and pensioners in many States
have received little or no compensation since January 2002.
There is a hiring freeze in most States, and new and existing
State projects are reportedly being abandoned. Non-paying
States include Anambra, Edo, Enugu, Abia, Imo, Bauchi, Borno,
Benue, Oyo, Ogun, Ekiti, Kaduna, Cross River and Akwa Ibom.
Ogun State reported that the state wage bill has grown from

N87 million in 1999 to N520 million in 2002 while pensions
have grown from N35 million to N125 million in the same
period. Ekiti State reported receiving N270 million from the
federal government in February 2002. Ekiti's monthly wage
bill is N420 million, including pensions. Kaduna claimed that
its revenue allocation had dropped by 50 percent, resulting
in a cut of all new projects.



4. (C) Central Bank Director for Research, Dr. Joseph Nnanna,
commented to EmbOff that the problem is "80 percent States'
fiscal irresponsibility and 20 percent the fall in federal
allocations." Central Bank Governor Sanusi had repeatedly
warned State Governors to save money when oil prices remained
high in order to compensate for truncated revenues during
times of low oil prices. Too many governors turned a deaf
ear to Sanusi's advice. Now, without the generous cash flow
created by liberal oil prices, the Central Bank's mid-2001
directive prohibiting commercial banks in Nigeria from
lending to State governments has closed off the most probable
stop-gap for the governors. State governments, therefore,
are hard-pressed to compensate for the shortfall in
expenditures. They have to swallow the bitter pill of
spending cuts.


--------------
Labor Unrest
--------------



5. (U) States' inability to pay employee and pensioner wages
have led to localized strikes in different areas across the
country. In Anambra, secondary schools have been closed
since November 2001 following a strike by teachers over
nonpayment of salaries amounting to N270 million (USD 2.3
million). These strikes and work stoppages have produced an
adverse ripple effect in some instances. In Oyo state, a
strike by State water corporation workers was accompanied by
an outbreak of cholera and other water-borne diseases due to
an acute scarcity of potable water. In Bauchi, magistrates
and other judiciary staff issued a two-week ultimatum ending
April 19 for payment of salaries due since November 2001,
threatening an indefinite strike if payment is not made.
There are numerous other examples of strikes by State civil
servants, even as groups still on the job increasingly
threaten to walk out.


--------------
States Blame the Federal Government
--------------



6. (U) Trying to divert the blame, many State officials and
national legislators are pointing the finger at President
Obasanjo. These groups are saying that the President erred
by not consulting them prior to his May 2000 announcement
doubling wages. Senate Chairman for the Committee on
Employment, Labor and Productivity Bello Gwarzo opined that
President Obasanjo should have brought his proposed wage
increase to the national legislature rather than unilaterally
declaring the increase. A bill would have been debated on
the floor and subject to public hearings during which State
governments would have had the opportunity to raise their
concerns. Instead, after the President made his
announcement, governors and legislators felt compelled to
support the increase. (Comment: These bellows from Gwarzo
and others are disingenuous. The National Assembly could
have debated the wage increase. However, the increase was
popular at the time and few, if any, were willing to take a
public stand against it. End Comment.)

7. (U) Accompanying the minimum wage increase in May 2000,
the entire government wage schedule was revised upwards to
reflect the increase at the lower end. Although Federal and
State government schedules are not directly linked, the
President's announcement of a nation-wide wage increase
effectively tied the two together. Therefore, the same
increase was applied to both a mid-level government employee
in Bauchi and a mid-level employee in Abuja despite the wide
disparity in the cost of living. State officials complain
that the Federal government, particularly the President,
should not set nation-wide wage levels, suggesting the
Federal government only set the national minimum wage,
allowing States to determine their own salary structures more
in line with local costs of living. A corresponding increase
in employee allowances, which supplement salaries through the
provision of personal vehicles, housing, furniture, etc.,
unlike the wage increase, were determined on a State-by-State
basis.



8. (U) The National Labor Congress is lobbying hard for a
promised 25 percent wage increase nation-wide. The President
last year pledged to implement the increase in April 2002,
but this is now unlikely to happen. State governors argue
that the 25 percent increase, if adopted, should only apply
to Federal government workers with a correspondingly lower
increase applied to State employees.


--------------
Comment
--------------



9. (C) The failure to pay civil servants is the most salient
sign that State budget outlays far exceed revenues. This is
partly due to the shrinkage in the allocations from the
Federation Account. However, mismanagement and corrupt
practices are also a heavily contributing factor. Most
governors have adequate money if they don't misspend on
massive prestige projects in Abuja, foreign travel and public
works contracts given to friends and relatives who will be
expected to finance their re-election campaigns. But with
elections less than a year away, governors and State and
local officials will be prone to divert funds for these
campaigns and to give contracts to supporters in order to
bolster their reelection ambitions. During the period of
tight money, the States cannot continue "business as usual"
and also pay their civil servants. State and local
governments are the largest employers in most communities.
Failure to pay civil servants will cripple local economies.
Moreover, the hiring freeze imposed by some States will
contribute to unemployment. Additionally, State-level
projects, many of which focus on health, education and
agriculture, have been suspended due to lack of funds and
thus the scant social services being provided will be further
reduced in many areas.



10. (C) The ripple effect of the States' financial woes is
serious and could cause widespread hardship amidst a
citizenry already struggling to make ends meet. The GON's
recent round of tariff rises will increase the cost of
staples, such as rice, and therefore heighten misery. While
fiscal discipline by the states is the first, most important
step, the Federal government may need to take remedial
action. However, there are no clear signals from the States
as to how they plan to cope nor from the Federal government
as to how it plans to help. Recent rises in world oil prices
may provide some relief to state coffers. Additionally, the
GON could consider lending money to the States to see them
through this dry period, although this is unlikely. The
Supreme Court's recent decision to prohibit the deduction of
first line charges before the Federal government remits
allocations to State and local governments will augment State
resources, but only minimally (reported septel).



11. (C) In a sense, the Federal government has the governors
on board. Failure to pay wages could be a blow to a
governor's electoral chances. Should the Federal government
help bail out the States, a political price tag likely will
be attached and President Obasanjo will expect the governors
to remember, come election time, that he is their creditor.
If action is not taken and the States continue to miss wage
payments, the country risks a more generalized civil service
strike that might not only bring things to a halt but might
result in significant disorder. This comes at a time when
the Nigerian Labor Congress has threatened a national labor
strike unless the Federal government implements the 25% wage
increase agreed to last year. One or both strike actions
would be a serious blow to the Obasanjo Administration. End
Comment.
Jeter