US embassy cable - 02ABUJA2744

C O N F I D E N T I A L ABUJA 002744 
 
SIPDIS 
 
 
DEPT FOR AF/W EPSTEIN 
 
 
E.O. 12958;  DECL: 
TAGS: ECON, ELAB, PGOV, EFIN, NI 
SUBJECT: NIGERIA: IS NEXT JANUARY'S 12.5% WAGE 
INCREASE FOR REAL? STAY TUNED 
 
 
CLASSIFIED BY DCM ANDREWS.  REASON 1.5 (d). 
 
 
1. (U) During his opening address before his National 
Executive Committee on September 12, National Labour 
Congress (NLC) President Adams Oshiomhole announced he 
had won from the Obasanjo administration a 12.5 per 
cent across-the-board wage increase.  The increase 
would be enacted January 1, 2003. 
 
 
2. (U) To ensure that the agreement was duly 
implemented, Oshiomhole said Labor would set up a 
joint implementation committee with the GON.   The 
remaining half of this long-delayed 25 per cent wage 
that the Obasanjo administration first had promised 
for May 1, 2001, would be implemented a year later -- 
January 1, 2004. 
 
 
3. (SBU) The new GON-NLC wage hike pact is different 
from its two predecessors in that neither the 
presidency nor the Ministry of Information announced 
it.  Neither, however, did they disavow it.  By 
withholding official announcement, the GON may be 
attempting to deflect criticism from the IMF and 
international community for such a step that would 
place even more pressure on an already burdened 
budget.  In fact, the day Oshiohmole's announcement 
appeared in the press, Chief Economic Advisor Magnus 
Kpakol claimed ignorance about the wage increase at a 
reception hosted by the IMF Country Director. 
 
 
4. (SBU) Optimists in the GON may believe that by the 
beginning of the year, the budgetary consequences of a 
wage increase will be mitigated by the assumed upsurge 
in oil revenues due to higher than budgeted oil prices 
coming into the system in late 2002 and early 2003. 
(GON oil revenues were down the first half of 2002 
because of a roughly 20% lower quota -- 2.2 million 
bpd was cut to 1.78 million bpd -- and lower prices 
for Nigerian oil in late 2001 which reflected the post 
9/11 drops in the oil futures markets of last fall.) 
However, the average per barrel price for the final 
two quarters of 2002 and first quarter of 2003 will be 
40 per cent or more above the budgeted USD $18 per 
barrel thus notably increasing revenues.  Some 
politicians also argue that the wage hike can be paid 
from the 11 percent devaluation the Naira underwent 
since June, claiming each dollar now generates about 
13 extra Naira, more than enough to cover the 
increased cost.  Note: These arguments ignore 
increased inflation and further devaluation of the 
Naira, two likely and probably immediate results 
(thanks to the Dutch Auction System) of further 
deficit spending resulting from the 12.5 per cent wage 
hike.  End note. 
 
 
5. (C) GON Economic policy officials, including 
Central Bank of Nigeria Research Director Joseph 
Nnanna and Director General of the Debt Management 
Office Akin Arikawe are pessimistic about revenues but 
optimistic that Obasanjo will again postpone the wage 
increase.  They say he will not raise wages in January 
unless there is a radical improvement in the GON 
fiscal situation and cite the lack of revenues as the 
rationale for shelving the earlier wage increase.  The 
new deal, they insist, also has a low-revenue escape 
clause. 
 
 
6. (C) Comment: A deal to raise wages enhances 
Obasanjo's position with organized labor (the largest 
single component of organized civil society claiming 
more than 5 million members) at a time when Obasanjo 
is eager for support given the ongoing impeachment 
threat against him.  Moreover, the news of a wage 
increase may have pre-empted calls for labor action 
against the Administration.  Confrontation with labor 
would have only added to Obasanjo's current political 
weakness.  In any case, Oshiohmole has previously been 
supportive of Obasanjo despite the President's having 
reneged on the promised 25 per cent increase last 
year.  The current wage agreement may be seen as a 
gesture of goodwill toward Oshiohmole and labor.  If 
the GON institutes the increase, it will be one of 
those instances where the positive immediate political 
benefits outweigh the probable negative future 
economic impact.  Obasanjo's final decision will 
probably depend less on economic data and more on his 
political standing come January 1, 2003. End comment. 
 
 
JETER