The real tale after last week’s meeting of the central bank’s rate-setting committee ― the Monetary Policy Committee (MPC) ― is not in any of the decisions taken. In spite of clear signs that changes in the level of domestic prices have refused to trend down as fast as was originally suggested by the sequence of policy tightening measures pursued by the central bank last year, the MPC held rates unchanged. As usual, numbers released by the National Bureau of Statistics (NBS) in the run up to the meeting, indicated that April’s inflation numbers were all over the place. First, there was a strengthening of headline numbers, with the year-on-year April measure up 80 basis points (12.9%) on March’s numbers.
Strong headline numbers were not supported by a change in the food index. This fell, year-on-year, from 12.2% in March to 11.6% in April. Nor, did the “core” component of the consumer price index lend a hand. The less volatile measure of domestic price changes (“All Items less Farm Produce”), weakened, again on a year-on-year basis, from the 15% at which it closed March, to 14.7% in April. Of course, the NBS had its explanation for these incongruities: “The higher year-on-year change (in the “headline” numbers) could be partly attributable to base effects as the index was relatively more stable in April of 2011”. Okay, so should we be shooting for seasonally adjusted annual average rates, going forward?
The CBN’s decision to leave the policy rate unchanged was no less easy to understand. Everyone acknowledges that come June, as the newly agreed electricity tariffs kick-in, domestic prices (even social peace, if the unions’ stroppy response to the proposed tariff hikes is any measure) might come under severe upward pressure. The central bank even weighed in on the possibility of higher prices, by acknowledging the likely effects of higher “import tariffs on wheat and rice as well as the rising global food and energy prices”. So why not just nudge the policy rate up 25 basis points, and reinforce the apex bank’s undiminished appetite for stable prices? More so, when the CBN’s staff project headline inflation peaking at 14.5% by July.
Only one answer to all these questions. The economy! Plain and simple! Growing up, an elementary component of the discourse over the nature and purpose of our federal structure, warned the “South” against making too much of its oil reserves and the net welfare benefits arising from this. According to this sub-narrative, the symbiosis on which the Nigerian nation is built must equally recognise the importance of the “North’s” agricultural dominance to the commonweal: 70% of domestic employment, and 45% of domestic output. It’s still moot whether or not the “South” will go to bed hungry “without” “the nation’s bread basket”, but the “low intensity warfare” in the “North” is illustrating how dangerous it is to leave gravamen (however illegitimate, or earned) improperly attended to.
On the back of first quarter output growth (GDP) numbers for this year, we all should be concerned. Both oil and non-oil sector growth were down, by -2.32% and down to 7.93% (from 8.73% over the same period in 2011) respectively. Agriculture, that bastion of the economy, performed most dismally. True, the rains have been irregular up “North” this year, adding to the sector’s general woes. But by far the biggest worry is the untended farms, as the rapid deterioration in the security situation there drives croppers off their lands. As a result of this, the NBS reports that “real agricultural GDP growth in the first quarter of 2012 stood at 4.15% as against 5.54% in the corresponding period of 2011”.
If the drop off in oil sector output growth is the direct result of a tailing off of investment in the sector because would-be investors have no real handle on government’s plans for the sector (the petroleum industry bill et al.) then the problem in the agriculture sector can only get worse. Farmers, scared off their farmlands this year, means either that the harvest is not being gathered, or that no planting is happening. Indeed both scenarios might just be playing out. In which case, the more serious effect of the “insecurity” in the “North” on agriculture will only be felt next year.
Was the MPC more worried about continued slowdown in output growth, rather than volatile prices? At this point, concerns along these lines would just be splitting hairs. The more important point to make is that all is too quiet on the fiscal and governance fronts.