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Viewing cable 08MASERU130, LESOTHO: LOCAL STAFF COMPENSATION LOSES GROUND

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Reference ID Created Released Classification Origin
08MASERU130 2008-05-09 14:27 2011-08-30 01:44 UNCLASSIFIED Embassy Maseru
VZCZCXRO9765
PP RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0130/01 1301427
ZNR UUUUU ZZH
P R 091427Z MAY 08
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC PRIORITY 3666
INFO RUCNSAD/SADC COLLECTIVE
RUEHMR/AMEMBASSY MASERU 4083
UNCLAS SECTION 01 OF 02 MASERU 000130 
 
SIPDIS 
 
DEPARTMENT FOR AF/EX DIRECTOR, AF/EX  BUDGET DIRECTOR, HR/OE/CM, AND AF/S 
PRETORIA FOR FMO 
 
E.O. 12958: N/A 
TAGS: AFSN ECON AMGT KICA LT
SUBJECT: LESOTHO: LOCAL STAFF COMPENSATION LOSES GROUND 
 
REF: A) MASERU 319; B) STATE 30757; C) STATE 51729 
 
MASERU 00000130  001.2 OF 002 
 
 
1.  SUMMARY:  Recent economic, labor, and commercial reporting 
and U.S. Mission Maseru's LE Staff Compensation Questionnaires 
provide growing evidence that post's LE staff compensation plan 
is not sufficiently competitive in the local market to 
effectively recruit and retain qualified staff.  Since 2005, the 
mission's annual salary adjustments have been far below 
inflation and the increases offered by comparable organizations 
in Lesotho.  The same factors have also eroded the purchasing 
power of salaries and the value of benefits to local staff.  The 
situation is most evident at higher level grades, where 
competition for qualified staff is most fierce, driven in 
particular by an influx of international NGOs to support a 
national AIDS emergency.  Cost of living increases for LES have 
shot up over the past year, exacerbated by skyrocketing prices 
for food, fuel, and utilities (over 10 percent annual inflation, 
higher during the first quarter of 2008); increasing interest 
rates; and the devastation of an HIV/AIDS pandemic which drains 
resources from virtually every U.S. Mission family.  We need 
additional resources for salaries to sustain our most important 
resource, our local staff.  END SUMMARY. 
 
-------------------------- 
The Macro Economic Context 
-------------------------- 
 
2.  Lesotho is a small landlocked country completely surrounded 
by South Africa - a nation on which its economy is highly 
dependent.  This position makes the country extremely vulnerable 
to external shocks, especially changes in the prices of imports 
from its only neighbor.  After sluggish economic growth in 
recent years, real GDP growth surged to an average of 7% between 
2006 and 2007, largely driven by revived diamond mining and 
recovery in the garment industry.  Poverty remains high and 
Lesotho has the third highest prevalence rate of HIV/AIDS in the 
world (23% among the general population, over 40 percent among 
adults between the ages of 18 and 25).  Life expectancy has 
dropped from more than 50 years to under 40 years in the past 
seven years. 
 
---------------------------- 
Spiking Inflation in Lesotho 
---------------------------- 
 
3.  Due to a drought-induced decline in cereal production and 
surging oil prices, there is strong upward pressure on food 
prices and overall inflation.  The Consumer Price Index (CPI), 
Lesotho's primary inflation measure, stood at 10.6% in February 
2008 (a record high since 2002)--a 75% increase since December 
2006.  But more importantly, food prices have risen by 15% year 
on year, and staples such as grain have been even harder hit. 
Food comprises 39.8% of Lesotho's CPI basket, so price changes 
in this basket component have a great influence on the overall 
inflation rate.  Electricity rates for residential end-users 
increased by 12% in April 2008, although the country's utility 
had requested a 40% increase to compensate for declining supply 
and the cost of related inputs and imports. 
 
--------------------------------------- 
Inflationary Pressure from South Africa 
--------------------------------------- 
 
4.  In February 2008, inflation in South Africa leaped to 9.4% 
compared to the same month the previous year, exceeding the 
target band by 3.4%.  As 80% of Lesotho's imports come from 
South Africa, these undesirable inflation developments have a 
multiplier effect in Lesotho, adding to the country's already 
unfavorable inflationary environment.  Interest rates in Lesotho 
generally reflect the South African prime rate plus a premium 
for perceived additional risk in the Mountain Kingdom.  The 
South African Reserve Bank, for example, recently raised its key 
repo rate to 11.5%, which resulted in a hike of interest rates 
to the current 15%.  This caused Lesotho's  prime lending rate 
to rise to 17% although actual access to credit is a near 
impossibility for most Basotho.  The Monetary Policy Committee 
has hinted that further interest rate hikes could be in store 
should the power utility Eskom receive approval to double its 
tariffs. 
 
5.  These adverse price and interest rate developments are 
accompanied by hikes in fuel prices, a recent 300% raise in toll 
taxes at border crossings, and the continuing adverse economic 
effects of the high prevalence of HIV/AIDS.  All of these 
factors reduce our local staff's spending power as their 
earnings are eroded by inflation, higher debt payments, and 
medical and funeral expenses for those infected or affected by 
HIV/AIDS.  Increased toll fees will also result in higher prices 
of imports as business will pass the 300% toll tax increase on 
to consumers.  Given the fact that current price pressures 
emanate mainly from food and fuel, consumer spending is likely 
 
MASERU 00000130  002.2 OF 002 
 
 
to slow, which will have an effect on the overall economy. 
Increasing interest rates are forecast to have the same effect. 
 
------------------------------- 
Prevailing Labor Market 
Practices: We're Falling Behind 
------------------------------- 
 
6.  In response to prevailing economic conditions, most local 
employers competing for skilled labor have improved their 
compensation plans.  For the past three years, Embassy Maseru's 
main comparators (i.e., the Central Bank, the Lesotho 
Electricity Corporation, the Lesotho Telecommunications 
Authority, Lets'eng Diamonds, and various commercial banks) have 
competed successfully for skilled labor by offering attractive 
compensation and benefit packages, some of which include housing 
and vehicle allowances. 
 
7. From 2005, a basic salary survey of seven of Embassy Maseru's 
comparators in labor market indicated that post's salaries, 
especially at the higher grades, remained significantly below 
the mean.  At these higher grades, for example, the survey 
indicated that several senior locally engaged staff (LES) earn 
30% less than their local counterparts.  Competition has not 
been confined to the domestic labor market, and therefore 
salaries in Lesotho have also been influenced by higher salaries 
offered in South Africa.  Lesotho's new Millennium Challenge 
Account board of directors has approved a compensation plan for 
dozens of new employees that will vastly exceed the U.S. 
Mission's LCP and compete favorably with the country's top 
employers.  Further, the GOL's FY2008 budget introduced a 20% 
percent pay hike across the entire civil service. 
 
-------------------------------------------- 
Comment: Now is the Time to Act on Local Compensation 
-------------------------------------------- 
 
8.  COMMENT:  Embassy Maseru kindly requests the AF Bureau to 
favorably consider increased financial resources to post to more 
closely align its local compensation levels to prevailing labor 
market rates, and to also support the transition of the 
mission's pension plan from a domestic underperformer to a 
regional program already in utilized by Pretoria, SA constituent 
post, and Mbabane.  At this critical juncture of unparalleled 
Mission growth, associated with two new Presidential Initiatives 
(MCC and PEPFAR), the program and service support required to 
sustain Mission efforts to ensure their success rests largely on 
LES.  Our inability to attract and retain LES severely 
diminishes the prospects for this success.  The financial and 
operational costs of staff attrition are considerable and 
require immediate attention.  Thank you for your support.  END 
COMMENT. 
NOLAN