Since the Central Bank of Nigeria (CBN) constituted its current rate-setting committee (the Monetary Policy Committee – MPC) almost three years ago, I (along with a few others, I guess) have looked forward to reading the communiqués that mark the end of the MPC’s bi-monthly meetings. In part, this is because of the level of detail in these communiqués (a lot more now, than previously). Usefully, this new disclosure level has increased the transparency of central bank communication in the country, and to this extent has played a useful role in keep inflation down. But the interest in the MPC’s account of its meetings is more because the communiqués have consistently attempted to open a window into the heart of the central bank’s rate-setting committee’s decision-making process. Accordingly, commentary by each member of the MPC, attached, as appendices to the communiqués, has been useful in dimensioning macroeconomic options locally.
Ahead of the MPC’s first meeting this year (Monday, last week), this dynamic changed ever so slightly. It was evidently too early in the year for monetary policy to be set. Thus, the pre-meeting colloquy devolved around what the MPC’s members could possibly have to mull over. Much in the policy environment still had to crystallise. Equally clear was that policy this year will set sail against very strong winds. But there was general agreement around the fact that it will take time, for one, until we have a working sense of the consequence for domestic prices of a number of recent developments in the polity, especially government’s recent tinkering with the pump-gate prices of petrol.
Much of the research available on this subject locally suggests a moderate, short-term spike in prices, but both anecdotal evidence, and the reaction of political leaders at the sub-national level, indicate rather larger levels of disruption to domestic economic activities in consequence of the fuel price rise. Similarly, the implementation of the multi-year tariff order in the power sector should drive electricity prices up for just about every category of consumers. By how much? And what implication for the CBN’s price stability remit? The effects of all these, together with the central government’s adjustment to the tariff structure for wheat and flour remain to be felt.
The MPC did not disappoint. At the end of its meeting, it kept just about every monetary policy handle unchanged. Indeed, the inability of the CBN’s rate-setting committee to shock the markets any longer has been very useful in managing domestic price movements. The MPC anchored its neutral call on the “clear impact of previous tightening on the rate of inflation and exchange rates up to December 2011”. A “wait-and-see” call, then?
Anticipated though this outcome was, it would have been an error not to read the communiqué. For thought-fulcrums there were aplenty. However, of all of these, one in particular stood out. Based on anecdotal evidence, I’ve always wondered if the proportion assigned to agriculture in our output growth figures are not a rounding error. The number of commercial motorcyclists in Lagos, for instance, and the places from which they reached the nation’s commercial centre from should concern anyone interested in this economy. With that amount of young, able-bodied persons daily leaving our rural areas, what’s to happen to an agricultural sector that’s both rain-fed and organised on a subsistence basis? Besides, for those of us who come from villages, it has been clear for a long time that the populations there have been rapidly aging because of the faster rate of young people heading out in search of greener pastures.
What to make, then, of this passage in the MPC’s recent communiqué? “The Committee also noted the NBS survey data on the rise in the unemployment rate to 23.9 per cent in 2011 from 21.4% in 2010. The latest unemployment rate is considerably higher than the 12.3% recorded in 2006 by the NBS survey, which suggests that the consistently high output growth during this period had failed to create adequate employment for the growing labour force”. If the larger proportion of growth last year was in agriculture, then lower workforce participation rates would suggest growing mechanisation. This is an inevitable part of the development process, as more efficient resource use pushes labour into service industries.
The only problem is that this transition is not taking place in this economy. We therefore need a different explanation for the combination of high unemployment and high output growth rates.