US embassy cable - 02ABUJA1162

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