Former banker turned technocrat, Yemi Kale is Statistician General of Nigeria’s National Bureau of Statistics (NBS), the apex data agency for all three tiers of government in Africa’s largest economy (a position attained by the national output rebasing exercise done under his watch).
In this interview with BusinessDay’s Akin-Olusoji Akinyele, senior economist, and Edozie Ifebi, editorial analyst, Kale discusses inflation results for March 2015, the reasons for the uptick in inflation and his outlook for the consumer prices, as well as some of the progressive work the NBS has been involved in and how data feeds into government policy formulation.
Excerpts:
Inflation is up at 8.5%. Since November 2014, we have had 7.9, 8.0, 8.2, to 8.4, and now 8.5. From your understanding, how much further do we have to go?
Well, inflation is about demand and supply. We can’t predict what producers and consumers will do. But we can be intuitive. I think we all expected that inflation was likely to rise.
What we were not sure about was the magnitude of the rise. There are two types of inflation: the cost-push inflation, and that is as a result of additional prices to producers and they might be tempted to push that additional cost to consumers, and that pushes up the price. So, nothing has happened, we just have additional cost, they want to retain profitability, they push the price up to retain the revenue and cancel out the cost. Additional costs in this case are things like the depreciation of the naira, which means that producers have to buy things at a much higher naira price. The other type of inflation is the demand-pull inflation, which is basically too much cash chasing fewer goods. Here, the producers could sell to the highest bidder and will of course push up the price and vice versa.
So, the cost-push is the bigger reason for the inflation, resulting from the depreciation. It also depends on the particular commodity and how easy it is for producers to push the cost to the consumer. People assume it is automatic, but it depends on the cost structure and the demand elasticity for that product. If there are substitutes, consumers will switch, especially if there are no rising incomes. If consumers don’t have the income, producers can’t pass on the higher cost to them and if the producer tries to force it, they might lose the entire market because people will switch completely to a substitute. So they have to be careful how they try to push that price. I think that is partly what we are seeing here. Producers are trying to pass on the effect very slowly.
In this kind of situation, producers tend to be more cost effective because they are looking at profitability at the end of the day. They either increase output or control cost. If they have difficulty pushing up output because they can’t pass the cost on to consumers, they will probably become more cost effective.
They might start laying off staff or cutting the advertising budget, or some other budget just to maintain profitability. For those vital goods for which costs can be passed because consumers don’t have substitutes, producers will push up the price.
We will find out if businesses are cutting cost by staff retrenchment in the next Job creation and employment numbers. When we see the annual statements, we will see if there is any reduction in staff cost or operational cost and so on. I don’t think they are pushing on the cost fully yet anyway.
Luckily for Nigeria, imported food prices in particular, are going down. That helped us because it takes away the steam. If for instance, you have to pay 20 percent more to import an item due to the devaluation, but the price of the commodity is falling globally, it reduces the impact. But if those prices are going up, then in Nigeria we will see an additional burden that would have made the inflation higher. So, the fact that imported food price is international, coupled with the zero inflation reported in so many countries. That helped in terms of the things we are doing here. It has reduced the impact of the depreciation. Those are part of the reasons why it has been not that strong.
Inflation will still probably go up a few more times, but I don’t think the impact will be really strong. Maybe 8.6, 8.8, or closer to 9 percent. It might even get above 9 percent. I don’t really see it going to double-digit, particularly since currently the exchange rate in any case is now stable and the producers, might decide to take their losses and just strategize based on the new exchange rate. Most of the problem was uncertainty which has gone.
In terms of domestic food inflation, we are lucky we had a very good harvest, so domestic food prices are lower or stable, or growing slower than they used to historically. It is just the imported aspect of both food and non-food that is putting pressure on inflation. So, as long as we can continue to have a good harvest domestically, that would also help to cancel the impact of the imported inflation on food that is coming in.
The most interesting thing we have seen in the NBS is the amount of data that is now being churned out, perhaps the peak of that was the rebasing of the GDP in April 2014. The only worry is how much of these information feeds now into policy formulation documents of government? How much of these policy documents are been updated for the new realities of the Nigerian economy?
Well I think one thing is clear, the use and importance of data in formulating policy, which has improved in recent times. The government, in setting up committees and strategy groups has always insisted that the NBS must always be a part of them because they want to hear the numbers.
The reason it wasn’t done in the past is because firstly, the data didn’t exist and policies were just being designed based on things that sounded nice. But now people are always asking for data. We are constantly under pressure to provide data.
Almost every day the office of the chief economic adviser requests for one data set or the other. And because NBS is part of the system, we will always ensure it is available. So, it is improving, particularly at the federal level, maybe not as much in the subnational level. It’s a gradual process, but it has improve significantly. I’m hopeful that it does not change there is slightly better attention to what we do. The number demand for our data, by both private and public sector has increased. At some point three, four years ago it was about fifty thousand downloads on our website. Now, it’s almost two million. The number of hits on our website is about over four million currently, before, it less than a hundred thousand a whole year, the number of people that ask for data, that walk into the office has also increased significantly.
In fact our public relations unit is always behind because they get at least a hundred emails every day. There is a lot of attention when you have a lot of people coming into Nigeria for investment.
Investors don’t invest unless they understand the market, so they ask for more information. When you have a government that wants to add data to their policy documents they ask for information.
When we have citizens that want to hold officials responsible that would want to see the numbers.
The last election was a debate about numbers. But there has been a lot more attention to data, and a lot more data has been put into policy. Even sometimes when the government request for specific data for a policy document, even when we don’t have the required data, they fund us and put us under pressure to produce it, because they need the data to complete the policy document. A lot of that has been happening though not up to hundred percent, but it has improved significantly.
We want to get clarity on the states’ GDP project. People will want to know, because the argument about the viability of states these days have become relevant, especially now that falling oil revenues are beginning to show some lapses. Tell us about ongoing projects that address that.
Well, we have been doing a lot of things and there are four areas of reforms that will tackle this. We focused on methodology, hence the GDP rebasing. We can’t be using outdated methodology. We also did that for unemployment and job statistics, which we are going to reveal in the next few weeks. We did not want to reveal the methodology before the election because it would be interpreted as being political.
For the first time in 27 years, we are working on our agricultural census. It’s meant to be done every 10 years. We are basically going to account for every form of agricultural output around the country
and mark their project; go to every farm and poultry to mark them, to know where they are, and map them geo-spatially. We need to do that to understand the economy.
If we are using the 27-year framework we will keep saying things like “70 percent of Nigerians are in agriculture,” and that is not the case anymore. So, we are updating that now. We are doing the same thing with the census of businesses and industry. We go and count every business operating in the country. Again we have not done that for 23 years. We found that in rebasing, where the number of businesses in our base increased from 80,000 to over 900,000. So, we count them and make sure we cover those sectors properly. Even for poverty we have been using income-based approaches to poverty in the past, like those that earn one $1 or $1.5 a day, those that eat a minimum level of calories to determine whether they are poor.
But in the newer method now we have said that poverty is multidimensional in nature, so we are using a multidimensional poverty approach, and this method takes about seven or eight indicators, not just income. It takes education, health, security, also income. You can have over a dollar a day, it does not necessarily mean you are well off. You might be living in poor house with poor facilities, that also counts as poverty. You might have cash but no education or no access to health, so we are looking at poverty in a multidimensional way.
Again, it is a project we are working on that we will unveil when we are done. Now, taking you to the state GDP, I said the other ones because they were 100 percent under the control of the NBS. The state GDP for some reason was conceived to be coordinated by the National Planning Commission. NBS is of course the operational leader, we are the only one that can get the data, but when we are having it coordinated by another agency, we have to move along with their own pace. We have the staff, we are ready to go and get the information, but we have to go ahead at their pace.
Also, the idea was that the states were all supposed to contribute to the funding. The Federal Government pays 50 percent, the state provides the balance. Now, we have a situation where 23 states bothered to pay, so we have to now ask a question: do we continue pushing the other states to make their payments, or do we just go and get the numbers for states that have paid? That decision again, because the NBS is not the lead but a supporting player, has to wait until the National Planning Commission takes a decision on that, which they have, but I think the timing coincided with the elections.
What we have now is that some states, that have long paid are tired of waiting for us to go to the field. So, they are coming to NBS to work with us directly. About six states have actually come to us to say the bigger state GDP project can be done when the others are ready, but that they want to know the structure of their state economy. Our staff has worked with them and we have gotten the data for their own states, pending when we are ready for the bigger one.
Six states so far, I think there is a seventh state now. It is very important that states don’t do it themselves because once the methodology changes the numbers won’t make any sense. If you go and count things in a different way, your numbers are going to be different. I remember when California in the US tried to do theirs on their own once, without taking considerations for the Federal level. Their GDP was higher than the entire US. That’s why NBS is empowered to ensure .methodology; and to ensure that the standards and process are uniform across all the states. So, apples are compared with apples and oranges with oranges, that’s actually our role.
We encourage states to ensure that they reach out to NBS so we can ensure you are using laid down approaches.
Would you say the National Planning Commission is like a hindrance, having to work with their own schedule?
National Planning Commission does not interfere with the operations of NBS, regarding this project. Particularly, the National Planning Commission is the one that is responsible for state coordination and at the time I felt that it was easier to get the state to comply if they use their machinery or means they have for it. I won’t say it is a hindrance, but I think there were a lot of differences, like I said some states did not pay. So, there were a lot of challenges involved in that.
We are very independent, National planning commission in going to the states had to be a bit more politically sensitive, so they might want to get a go ahead from the state governor. We would have gone straight away, because they don’t want to break relationships. I understand the constraints they face. It would have been obviously faster if we had the resources. So, there are specific circumstances surrounding them.
Let’s look at the informal sector; we understand that it is quite difficult to measure what is going on around there. How is the NBS trying to tackle accurate information in this sector, which accounts for more than 50 percent of the economy?
Actually, it is even closer to 60 percent. You are absolutely right, ignoring the informal sector means ignoring most parts of the economy. It includes the low skilled and that is where the poorer people of the society reside and the objective of government anyway is to improve the lives of the poorer people. If there is any data that is important to get, it is actually those people.
Apparently, they are the ones that are off the grid, so it is even more difficult for government to relate with them directly without that information. We observe from our research that most informal sector businesses are household-based businesses. The woman with her daughter, or the man on the farm with his children, or some food services shop at the corner, most of the time it is a family business.
To tackle that problem what we do is we go to the households to get the information. We go to their houses to make contact with them, we collect their details, name and then going forward we start calling on a daily or weekly basis to know how the business and its revenue are doing.
Surprisingly, the small businesses are very good at record keeping. They know how much they spend on salt, and on seasoning, because they have to and they have fewer amount of money to manage. They have the details actually and they are more willing to give you. The problem is that they are so many, and we can’t possibly speak to every one of them, so we have to ensure that we select a representative sample, as much as possible. Even in doing that we are still going to understate the figures. We have twelve million households and average is seven per household.
NBS does not have the staff to be able to go to twenty million households, so we select a sample of fifty to hundred thousand household and we work with that.
