To rein in inflation and boost agriculture, the Central Bank of Nigeria has done everything within its scope. Adequate security for farmers and unhindered access to farm lands, which is crucial to bumper harvest translating to reduced cost in agriculture produce, is fiscal authority’s mandate not CBN, ABDULWAHAB ISA reports
As the country’s custodian of monetary and price stability, the Central Bank of Nigeria (CBN) is back on the front bunner of public scrutiny. The bank’s performance in relation to its fundamental role, price stability, is being assessed in the face of current unsettling economic headwinds that set the price of all items spiraling above the reach of the average man. The outcry is coming on the heels of recent tightening measures adopted by the bank, which saw the anchor lending rate (MPR) moved from 13 per cent, a position adopted barely two months ago, to 14 per cent; an action taken last week to curtail the unabated inflation. Inflation has been on a steady, progressive climb in Nigeria’s economic ladder. In simple but layman’s understanding, inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. While all the items comprising essential commodities and services have tripled, that of food, the most important component in inflation measurement, has witnessed consistent spiralling despite critical interventions by the Central Bank of Nigeria (CBN).
Inflation at a glance
According to NBS’s recently-released data, annual inflation rate in Nigeria accelerated for a fifth straight month to 18.6 per cent in June of 2022, the highest rate since January of 2017 compared to the 17.7 per cent figure of May. Food inflation surged to 20.6 per cent from 19.5 per cent, mainly due to bread and cereals, potatoes, yam, meat, fish, oil and fat, and wine. The food and non alcoholic beverages sub- index was by far , the most important, accounting for nearly 50 per cent of total weight. Compared to the previous month, consumer prices increased 1.82 per cent, after a 1.78 per cent rise in May. The current inflationary pressure is not limited to Nigeria. Advanced nations and their respective central banks are battling inflation spurred by the Russia/Ukraine crisis. The United States announced a 40-year new high of 9.1 per cent in June this year. The United Kingdom’ Consumer Prices Index (CPI) rose by 9.4 per cent in the 12 months to June 2022, up from 9.1 per cent in May. On a monthly basis, CPI rose by 0.8 per cent in June 2022, compared with a rise of 0.5 per cent in June 2021. In Canada, consumer inflation continued to rise, reaching 8.1 per cent year over year in June, following a 7.7 per cent gain in May. The increase was the largest yearly change since January 1983. The acceleration in June was mainly due to higher prices for gasoline, however, price increases remained broad-based with seven of eight major components rising by three per cent or more. Other African nations are not spared either. South Africa’s inflation rate reached 7.4 per cent in June from 6.5 per cent in May, Statistics South Africa declared recently , describing the highest rate since May 2009 when the rate was 8,0 pet cent. Ghana, Nigeria’s closest neighbour, had its inflation accelerated to 29.8 per cent annually in June from 27.6 per cent in May, official data showed. Ghanaian officials said inflation last hit 29 per cent in January 2004. June prices were driven higher by items such as fuel and bread, with prices of imported goods rising more than domestically produced ones for the third month in a row.
Ukraine/ Russia war connection
The Russia/Ukraine war is one of the most important elements driving the current global inflation, Nigeria inclusive. Against an already turbulent backdrop of global inflationary pressures amid rising food and energy prices and disrupted supply chains following the coronavirus pandemic, the war between Russia and Ukraine is exacerbating supply and demand tensions, damaging consumer sentiment and is threatening global economic growth. The International Monetary Fund (IMF) cut its global growth projections for 2022 and 2023 recently, saying the economic impact from Russia’s invasion of Ukraine would “propagate far and wide, adding to price pressures and exacerbating significant policy challenges.” Similarly, the World Bank lowered its global growth forecast for 2022 by nearly a full percentage point, from 4.1 per cent to 3.2 per cent, citing the pressure that Russia’s invasion of Ukraine placed on the global economy. Russia, for instance, is the largest exporter of wheat. That explains the likely disruption in the food value chain associated with the current war. The same applies to other varied commodities.
CBN steps to counter inflation
Did the apex bank stand aloof, helplessly watching inflation spiralling out of control? No. What did the bank do? CBN, under the leadership of Mr. Godwin Emefiele, broadened the bank’s interventions in agriculture than any other past administrations. This partly aligns with President Muhammadu Buhari’s commitment of making Nigeria economic hub for agriculture as well as conserving the country’s huge forex that was being expended on food importation. CBN’s record showed it granted N948 billion to 4,478,381 smallholder farmers in Nigeria to boost food production. Apart from supporting farming, the CBN governor said that the ambitious programme created 12.5 million direct and indirect jobs for Nigerian youths. Emefiele gave the update recently while delivering the convocation lecture of the Ekiti State University (EKSU), in Ado-Ekiti, Ekiti State. During the last Monetary Policy Committee (MPC) meeting in Lagos, Emefiele highlighted the bank’s interventions in the area of agriculture. He said the bank released the sum of N3.62 billion as disbursements to 12 projects for the cultivation of rice, wheat, and maize, bringing the cumulative disbursement under the programme to N1.01 trillion to over 4.21 million smallholder farmers cultivating 21 commodities across the country. The bank also disbursed N3.72 billion to finance three large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS). These disbursements brought the cumulative disbursements under this scheme to N744.32 billion for 678 projects in agroproduction and agro-processing. Emefiele said all excess output aggregated from the financed farmers would be released to the Nigeria Commodity Exchange (NCX) to help moderate the prices of food in the market. The apex bank also released N1.76 billion to finance two large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS). Under Agri-Business/Small and Medium Enterprise Investment Scheme (AGMEIS), over 28,961 agribusiness and artisan projects have been financed across the country, 107,932 direct and indirect jobs created, and boost the productive capacity of the domestic equipment fabrication industry across the country. AGSMEIS, which is an initiative of the Bankers’ Committee, was formally approved at its 331st meeting in 2017.
Why cost of food is rising
Notwithstanding CBN’s interventions and support to agriculture with a view to boosting supplies, and ultimately reducing prices of food items as envisaged by CBN, inflationary pressure, especially on food component, defies CBN’s logic. At various fora, including last Monetary Policy Committee (MPC) meeting, which was held in Lagos, Mr. Emefiele said heightened insecurity, herdsmen’s clashes with farmers were heavily rubbing off on expected bumper growth in agriculture. “The Committee noted with concern the persisting uptick in headline inflation (year-on-year) to 18.60 per cent in June 2022 from 17.71 per cent in May 2022, an 89-basis point increase in just one month. “This continued increase in inflation was driven by increases in both the core and food components to 15.75 and 20.60 per cent in June 2022. “The considerable rise in core inflation resulted largely from the rising cost of production due to high energy prices associated with the persistent disruptions to power supply, hike in electricity tariff, continued scarcity of Premium Motor Spirit (PMS), and rising price of Automotive Gas Oil (AGO). “The increase in the food component was, however, driven by shocks to food prices associated with continued insecurity in food producing areas and along major access routes across the country; the continued impact of the war in Ukraine on the supply of fertiliser inputs, wheat and other grains; exchange rate pressures; and the impact of monetary policy normalization on capital flows away from emerging markets. “The Committee, however, expressed confidence in the bank’s sustained intervention programmes, noting that inflation is expected to abate as food supply improves and the fiscal authority sustains its efforts to tame the legacy structural challenges which put upward pressure on domestic price levels. “Members, therefore, urged the fiscal authority to expand and sustain its support for all the recently deployed stimuli to the real sector of the economy,” he said. Security and ensuring peace and harmony between farmers and herders is the exclusive preserve of fiscal authority, and not the CBN. According to CBN policy decision members, “the current upsurge in price levels remains a primary concern to monetary policy as members focused on the optimal policy approach required to address this development while protecting the fragile recovery. “The committee clearly identified that inflationary pressure was being driven by both demand and supply-side factors, which should be addressed using different policy approaches. “In the committee’s view, the demandside factors were being broadly addressed by the bank, using the relevant direct and indirect instruments. “On the supply side, the bank has continued to provide the necessary support, through its development finance initiatives in the real sector, to ease supply constraints. “The committee called on the Federal Government to prioritise efforts to curb the menace of insecurity to enable farming and other business activities return to normalcy. “The MPC thus called on the bank to continue its support to increase food supply in a bid to address food inflation. Members also noted the upward price pressure, particularly on transportation, resulting from the prolonged scarcity of premium motor spirit (PMS) and called on government to seek a long-term and viable solution to strike a balance between the pricing and supply of the product in Nigeria.” With a decline in investment inflow and domestic food production challenges aggravated by rising security concerns, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), last week, tasked the Federal Government to address insecurity issues for the economy to thrive. NACCIMA President, Ide Udeagbala, said domestic food production was at risk and there was a dimension of insecurity that is contributing to rising production costs and reduced consumption of goods and services.
Given that the current inflationary pressure is a global trend, not exclusive to any particular country, CBN’s lending to the agriculture sector would have had a multiplier effect in the absence of rampant farmers/ herders’ clashes.