Just over a year ago, we launched the Standard Chartered-Premise Consumer Price Tracker (SC-PCT) in Nigeria as part of a wider bid to improve the availability of economic data in Sub-Saharan Africa.
We hoped the tracker would address a longstanding investor complaint – a lack of information on Africa’s economies – which is often used as an excuse for not doing more in the region.
Not knowing what’s happening sufficiently early on raises risk and can delay much-needed public-sector policy.
Whilst both governments and development partners have been investing a great deal more in national statistics bureaus in recent years, we see a role for the private sector in providing more frequent and granular data alongside official indicators.
“The difficult policy decisions made in Nigeria in the wake of the drastic drop in oil prices may not have worked quite as intended”
So what does a year’s worth of price data tell us?
One clear message that the difficult policy decisions made in Nigeria in the wake of the drastic drop in oil prices may not have worked quite as intended.
With the country’s oil earnings under pressure, the Central Bank of Nigeria (CBN) has faced a stark choice between imposing new controls on imports to safeguard foreign exchange reserves, or allowing for more market-determination of the Nigerian naira.
While the CBN allowed for a modest fall in the value of the naira early in the crisis, since February it has favoured increasing controls on imports and foreign exchange trading.
Cost becoming clear
Some of the shorter-term costs of these policy choices are now starting to become clear.
One cost is that Nigeria has been excluded from the JP Morgan’s GBI-EM index on the grounds of illiquidity in its foreign exchange market. With a theoretical maximum of about USD2.9 billion of index-tracking funds available to Nigeria, this may mean foregoing billions of dollars in index-tracking portfolio inflows.
Other investment may also be discouraged by the risk that a sizeable correction in the Nigerian naira may become necessary. At a time of weaker oil prices, when Nigeria is likely to become more reliant on foreign financing of much-needed infrastructure, there is less financing available.
“The new consumer price tracker could play a valuable role in highlighting the impact of policy choices”
Another cost has been rising consumer prices. This is where the new consumer price tracker could play a valuable role in highlighting the impact of policy choices.
The CBN acknowledges that either of its policy choices – freeing up the FX rate, or imposing further restrictions on imports – might have caused inflation to rise. With our real-time consumer price tracker – based on data ‘crowdsourced’ from people with smartphones on the ground in Nigeria – we have been able to gauge the exact timing and extent of the pressure on prices.
After an initial surge in the prices of items now on a ‘restricted for imports’ list, we have seen little evidence of a corresponding revival in domestic production. With prices of restricted import items still elevated, our tracker suggests that Nigeria has not been able to substitute imports effectively – at least, not yet.
Effect on inflation
July, the first full month after the imposition of import controls, saw the fastest month-on-month increase in our tracker index since it began. We observed some moderation in prices in August, but this was largely due to seasonal effects, related to the harvest. We have seen little evidence so far of a favourable supply response to counter the effect on inflation.
Nor does this favourable response seem likely in the near term. Many manufacturers cite an ongoing foreign exchange shortage and poor availability of imports as reasons for sluggish growth prospects.
One margarine importer considered switching to domestic production following the imposition of restrictions on imported margarine. However, palm oil, a necessary input in the production of margarine, was subject to restrictions as well. With our tracker suggesting that palm oil prices remain elevated, domestic production of margarine is unlikely to become properly cost-effective any time soon. Policies that were aimed at reviving Nigerian manufacturing may inadvertently end up having the opposite effect.
“It is Nigeria’s real economy that has largely borne the cost of its foreign exchange difficulties”
We hope that the data provided by our consumer price tracker will be useful to policy makers as they seek to boost domestic economic activity and employment.
It is Nigeria’s real economy that has largely borne the cost of its foreign exchange difficulties. The timely availability of price data, even measured on a micro scale through our tracker, has made this clear.
Despite only just reaching its first anniversary, we hope the SC-PCPT – while it should not be seen as a proxy for Nigeria’s extensive official price data – will continue to make an important contribution to the policy debate.