Governor Sanusi Lamido Sanusi of the country’s apex Federal Reserve Institute, the Central Bank of Nigeria and its monetary policy committees retained the benchmark interest rate at 12 percent. The market did not anticipate any change of the monetary interest rate; therefore there was no negative or positive reaction to the outcome. Sanusi’s CBN cannot be accuse of not trying its best possible to utilize the tightening of the monetary policy as a tool to rein in the surging inflation, although the result has been mixed. Now CBN can realize that monetary policy alone that rests on the manipulation of the interest rate and supply of money has its limitation. Sanusi promised to hold down interest rate below 10 percent, but the subsequent disinflation was not grounded on fundamentals but on momentum and that’s why it is difficult for inflation rate to stick below 10 percent.
Nigeria‘s economy has a structural problem that cannot be corrected with tinkering of the interest rate. First and foremost the resource derived from oil based economy is not realistic indicator and determinant of a functional economy. The external forces determine the price of oil and make it difficult for Nigeria to plan and implement a realistic budget due to price gyration of oil. The instability deems it necessary that Nigeria should move beyond oil based economy. But the quick, sweet and rush of easy money from oil have not allowed the policy makers to be logical and visionary on the strategic outlook of the economy.
With the regards of controlling inflation, the attention of the executive arm of government must be sought. There should be a coordinated platform to enable CBN and the presidency to work together. The fiscal policy coming from the presidency must be in tune with monetary policy of the apex bank. The point here is that as monetary tool functionality lapsed with regards to checkmating inflationary trends, then the need for putting fiscal policy into action becomes apparent.
Nigerian economy is weak in spite of the robust growth it has registered. The source for the generation of foreign exchange from the economy is limited and the economy is not export orientated. A major problem of the economy; it’s the inability to produce enough jobs to commensurate to the robust economic growth. As for naira even with its recent appreciation, it is also weak and malleable when compares to dollar.
To enhance the value of naira the country’s war chest must be strengthened in order to withstand the threat coming from speculators. The country’s reserve stood at US$ 32.64 billion in December and the inability to replenish the dwindling reserve in spite of high price of oil was due the constant defense of the weaken naira. The CBN has eventually restored to the devaluation of naira up to N160 to $1. But the bulwark is not the panacea because it is focusing on the symptoms of the problem not on the root cause. The country does not produce arrays of agricultural and finished products to export in order to raise a quantifiable foreign exchange that can make naira stronger and that can discourage currency speculators.
Central Bank of Nigeria may be happy with partial removal of fuel subsidy but that cannot accomplish the targeted purpose of propping up foreign reserve. There are immediate effects and implications that come with the removal of the fuel subsidies. The first major problem will be higher inflation which may accelerate to 13 percent or more. Then the prices of agricultural products and household products will escalate due to transportation and energy cost. The standard of living will likely to depress and that is not a good trend in a country with 70 percent of the population survives with less than two dollars a day. The increasing poverty does augur well with the stability of society and that can be translated to higher crimes and poor security. Poverty and insecurity discourage economic development and have the propensity to encourage capital flight and weaker attraction of direct investments in the non-oil sector of the economy.
The economic growth of the Gross Domestic Product at fourth quarter of 2011 was 8. 68 percent while inflation rate was at 10.3 percent in December. The fourth quarter GDP growth was impressive but it did not make a difference on the people due to lack of jobs and increasing poverty.
According to the Domestic Macroeconomic and Financial Developments issued by Sanusi’s Central Bank of Nigeria the "real Gross Domestic Product (GDP) grew by 8.68 per cent in the fourth quarter of 2011 up from 6.64, 7.72, and 7.40 per cent in the 1st , 2nd and 3rd quarters, respectively. The overall GDP growth rate in 2011 was estimated by the NBS at 7.69 per cent, marginally lower than the 7.87 per cent recorded in 2010. This projection is based on the estimated Quarter III and Quarter IV growth rate of 7.40 per cent and 8.68 per cent respectively. The 2012 Budget proposal assumed a growth rate of 7.2 per cent." Without doubt the data looks wonderful on piece of paper, how far does it fare in the real world?
Looking at the data the Central Bank of Nigeria should have been excited together with streets and villages of Nigeria of the surging economic growth buttressed by the rosy numbers. But that was not apparent because it did not translate into more jobs. The unemployment rate stood at almost 24 percent (23.9) at the fourth quarter according to National Bureau of Statistics (NBS). But the real unemployment rate is definitely higher when urban joblessness among the youths is factored in and rural unemployment statistic is properly gathered. Due scientific and technological limitations, the unemployment number was not correct.
Sanusi Lamido speaking at the lecture he delivered at London School of Economics could not explain succinctly the real reason why the unemployment was escalating despite the rosy economic growth in the country. His words, “Major bottlenecks and supply-side constraints, including enabling legal framework” have “slowed the responsiveness of some CBN reform measures.” And he continues, “The link between major growth drivers, particularly agriculture and manufacturing, continue to be weak and the required costs of the expected infrastructural needs of the economy are daunting and remained a major challenge to financial sector, “the need for a low-cost long-term infrastructure financing requires more than the CBN alone can tackle.” All he was saying that there is no answer for what is happening in the economy with regards to economic growth and higher unemployment.
Sausi’s CBN did some good: The Recapitalization and Quantitative Easing (QE) brought back confidence in the banking sector. The down side is that over stimulation and over supply of money may induce higher inflation. The billions of naira that was used to propped up and bail out collapse banks probably overheats the economy and that could trigger higher inflation. That will make the job of controlling inflation more difficult.
Notwithstanding, CBN deserved huge credit for salvaging the failed banks but the banking sector cannot function alone to the exclusion of the whole economy. CBN cannot do it alone; the country’s economic problem cannot be resolve by moping of the liquidity and tightening of the monetary tool to rein in inflation. A country with structural problem needs a committed and visionary leadership.
Nigeria‘s economy needed to be over hauled to make it more productive, not only relying on oil export. The problem of infrastructures must be tackled not with lip service but with pragmatism. The refinery must be built and those ones in progress must be completed to bring down the price of petrol and to meet the local demands. Roads, schools, electricity and most important the security must be improved. Political instability and social unrest are gateway for capital flight and investments repatriation. Nigeria must reject these ailments that can threaten and deter economic growth.
Emeka Chiakwelu is the Principal Policy Strategist at Afripol Organization. Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa. http://afripol.org. strategist@afripol.org