As CBN raises Benchmark interest rate to 12 percent, inflation rose to 10.3 percent in September from previously 9.3 percent in August

Once again at the beginning of fourth quarter, the country’s Federal Reserve Bank; the    Central Bank of Nigeria (CBN) raises the monetary policy rate (interest rate) to a new high of 12 percent from previously 9.25 percent. There is no surprise with the new hike knowing quite well that CBN has been aggressively engaged in the tightening measures of its monetary policy and assiduously mopping the monetary base liquidity. But the margin of the hike at 2.75 percent from the previous rate was astounding. The capital market was anticipating at least a 10 percent hike but the muscular CBN jumped interest rate to 12 percent.

The reason given by the Governor of Central Bank, Mr. Lamido Sanusi  for the hike was to strengthen the relatively malleable Nigeria’s currency naira. Although naira is weakening but it is not necessarily in a dire straight either it is totally collapsing to require such a drastic hiking of the interest rate to 12 percent. Subsequently Naira responded and appreciated against dollar due to the aggressive move; it did rally in the market and closing good the next day after the hike of the interest rate.

Vanguard Newspaper reported that “naira opened at 157.40 against the dollar at the interbank, firming from Tuesday’s close of N158.90 and up six percent from the record low of 167.8 reached before the CBN imposed several monetary tightening measures at an emergency meeting on Monday.” It was reported that Central Bank of Nigeria (CBN) at auction market sold $519.67 million at price rate of N150 for a dollar. On the previous day before the recent interest rate hike $400 million was traded at N156.91.

Other than the strengthening of naira, the unmentioned reason for the interest rate hike might be to get the economy ready for the removal of fuel subsidies. The idea is to utilize the monetary tightening policy as bulwark from the eventual higher inflationary trends as the subsidies are removed.There is no doubt that inflation will spike momentarily for a short time as fuel subsidies become history. Although Sanusi’s CBN was mum on fuel subsidies as propelling force for 12 percent monetary interest rate, but the writing is on wall. The development buttressed that the removal of fuel subsidy is a sure banker and there is no more orbiting around it, the government has finally made up its mind.

But the move to fix naira from its fall by CBN is not sustainable for the ‘shock therapy’ cannot solve the problem of naira permanently. The Sanusi’s CBN appears to be riding on momentum rather on fundamental; Nigeria has a structural imbalance that the tickling by CBN is quite minuscule to make a long term impact on the monetary affairs of the country and the strengthening of naira. Nigerian economy is based on oil and such an economy without diversification lacks the strong fundamental to sustain a viable and strong currency. When Nigeria sits up and makes the necessary changes in the way she runs her economy, the malleability of naira can be checked. The reactionary posture by policy makers is not the panacea to the falling naira.

CBN's Sanusi

The source of foreign exchange to Nigeria’s economy is limited. The major source of dollar to the economy is through the export of crude oil and remittance coming from Nigerians in Diasporas particularly from North America.  Another weakness in the economy is its inability to sustain or hold to those dollars flowing into the economy. This is because the economy and country lack the necessary infrastructures that can hold on to the dollars in the economy. Paucity of social infrastructures, poor security and underdevelopment contributes to capital flights. The country is becoming unattractive to foreign investments and dollars.

The problem with Nigerian economy and particularly with Naira is akin to football team that never soccer a goal in matches and always loses due to lack of training and planning.Although a team might have some good players but without training, planning and coordination it will never succeed. Nigeria has intelligent men and women but it has failed to map out a pragmatic and strategic framework to transform the nation’s economy.

In September inflation rose to 10.3 percent and this shows that the tightening monetary measures employed by CBN maybe waning. There is so much CBN can do with its monetary policy and if care is to be taken the success that CBN achieved may even reverse. This is why it is important that propping of naira and the battle against inflation must come with comprehensive strategy and economic reforms spearheaded with the executive fiscal policy.

Another thing sticking out with the 12 percent hike is the underpinning contradiction coming from CBN policy makers. The appreciation of naira will result in a sharp demand of dollar and CBN may not satisfy the demand. A contradiction that arises from the strength of naira is contrary to devaluation of naira that CBN is planning for near future. It is not logical to make naira stronger, simultaneously planning to devalue the currency in near future. The withdrawal from the country’s foreign reserve to defend naira has lowered the Nigeria’s reserve from $31.75 billion at the end of September to $30.86 billion as of October 7. The battle to save naira is expensive to the country therefore Nigeria must look beyond monetary tightening measures.

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/     This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Nigeria’s grip on inflation rate is becoming consistent at third quarter with a single digit at 9.3 percent, and with an impressive economic growth rate at 7.72 percent in August. So far a significant development and good track record is brewing, for at the beginning of third quarter inflation rate was 9.4 percent in July, and the latest recorded 9.3 percent shows a slightly declining inflationary trend.

But looking at the country’s misery indicators intrinsically – overwhelming poverty and crushing unemployment; these fabulous numbers are not making impact to the suffering masses that are without jobs and are etching out a living with less than two dollars per day. Economic experience by average Nigerian, who can barely feed his family three decent square meals per day cannot correlate with the economic expansion of the country’s GDP.  Positive economic growth should fundamentally ameliorate the misery index, lest it become senseless and insignificant to the majority of Nigerians.

Before Nigerian financial and economic policy makers beat their chest and celebrate with their talking drums they should realize that the country is not yet out from the wood. The much talked removal of oil subsidy and its implementation has not been resolved and neither the recapitalization of collapsing banks has been ceased. Let’s not overlook the increasing growth in food prices, which is the biggest contributing force to the consumer inflation rate. The food inflation rose from 7.9 percent in July to 8.7 percent in August and that is not good.

With these enviable numbers on inflation and GDP rolling out from the National Bureau of Statistics (NBS), the life style and economic well-being of 70 percent of Nigerians are stagnant and deplorable. There is no adequate housing, the food prices are going beyond the reach of the poor while the scarcity of the expensive kerosene makes life unbearable.

Nigeria is in the midst of confidence building news on economy and one cannot downgrade it. With decreasing turmoil at the Niger Delta; oil production in the second quarter of this year is averaging 2.45 million barrels daily. This is an improvement compared to 2.35 barrels of the previous year with more turbulent Niger Delta.

Bloomberg reported that “Inflation in Nigeria, Africa’s biggest oil producer, stayed near the limit of a central bank target and the economy expanded 7.72 percent in the second quarter, keeping pressure on the bank to raise interest rates. The inflation rate fell for a second month to 9.3 percent, the lowest level in more than three years, from 9.4 percent a month earlier, Yemi Kale, head of the National Bureau of Statistics told reporters today in Abuja, the capital. “Much of the improvement in headline consumer price inflation can still be explained by the positive influence of domestic food prices, and this should continue in the months ahead,” Razia Khan, the London-based head of African economic research at Standard Chartered Bank Ltd., said today in an e- mailed note to clients.”

Rising unemployment

The numbers on joblessness is not forth coming and the tabulations by National Bureau of Statistics (NBS) may be misleading. The last number I saw on unemployment was 19.7 percent in 2010. The National Bureau of Statistics website is not current with the unemployment figures. The last number it recorded was 40 percent unemployment in 1992. The 19.7 percent was provided by the former minister of Finance Mr. Olusegun Aganga last year. He did acknowledge that almost half of Nigerian youths at the age group of 15-25 years were without jobs.

And with the massive unemployment devouring the youths of the country it might be fastidious to peg the unemployment at an extremely conservative number of 19.7 percent.The 19.7 percent is not a realistic number when the rural unemployment is put into consideration and effectively tabulated. Even with conservative extrapolation the joblessness in the rural Nigeria where most people live will make the tendered number laughable. The low technology and paucity of technical know-how makes the collection of data cumbersome and sometimes out of reach.

Onitsha Kerosene waiting

Writing about jobs in Nigeria, Nasir El-rufai the former minister of capital territory Abuja, could not arrived at the exact unemployment figure but nevertheless he used the official numbers and also made his own realistic extrapolation. This is the way he put it, “The jobless rates in Nigeria have not fallen. On the same day but at different functions, the Minister of Trade and Investment put the unemployment rate at 14-16 per cent, while the Finance Minister put it at 21 per cent. The actual figure may be much higher than both numbers. The millions of people with no jobs represent a serious impediment to Nigeria’s economic development.  Apart from the immense waste of the country's human resources, it generates losses in terms of lower output which results in poorer incomes and increased poverty.  It also causes social decay and inhibits national cohesion. In fact, unemployment in Nigeria is a national security threat.”

He also wrote that, “Nigeria has about 90 million people who are willing and able to work, but about 70 million of them have no gainful employment. This is an alarming figure, but when the 4.7 million people captured in the formal sector in the latest statistics from the Pensions Commission is increased by the three to four times standard multiplier to capture those in the informal sector, it means that only about 20 million Nigerians have jobs, out of a population of 162 million. This simple fact causes the country a loss of about N2 trillion annually from the absence of commercial activities that ordinarily should have taken place but did not.”

The lack of job is one thing that cannot be politicized for real people are suffering .Job creation must be initiated by government by creating the fertile environment that will attract capital and investments. Government does not necessary create jobs but does aid the private sector in making job creation possible and imminent. Nigeria’s favorable economic indicators on economic growth and inflation can become a precursor in solving the problem of unemployment.

Nigeria's inflation drops to 9.4% in the third quarter of 2011

A good and encouraging record trickled from National Bureau of Statistics that inflation rate receded to 9.4%  in July, the lowest so far in three years. This is a significant improvement from persistent inflation that was surging upward that compelled the Central bank of Nigeria (CBN) to aggressively tighten monetary policy. As of June the inflation rate stood at 10.2% and this made the Sanusi's CBN to raise the interest rate to 8.75%. There is no doubt that the monetary policy of restraining and mopping up liquidity at the monetary base aided to slow down the rising inflation.

The governor of Central Bank of Nigeria, Sanusi Lamido has promised earlier to hold down inflation rate at less than 10%, but for a while it appears futile. Therefore the apex bank of the land, CBN gets into muscular mood by increasing the interest rate at numerous times to rein in the run away inflationary trends. Many observers of Nigerian economy and market including investors were little skeptical about the usage of the aggressive tightening of the monetary policy to achieved the targeted goal.

Financial writer at Thisday, Obinna chima observed that, "The CBN had always expressed disdain for double-digits inflation rate in the country. This has seen the apex bank’s Monetary Policy Committee (MPC), adjusting various monetary policy instruments to achieve that ambition. The MPC which has operational independence in setting of interest rates in the country had increased the benchmark interest rate – the Monetary Policy Rate (MPR) four times since this year. The benchmark interest was raised from 6.5 per cent in January to 7.5 per cent in March, 8 per cent in May and to 8.75 per cent at the July meeting. Other monetary policy tools such as Cash Reserve Requirements (CRR) had also been reviewed upward."

In reality the issue of taming inflation in Nigeria must go beyond monetary policy but should involves the presidency's fiscal policy to help in the struggle to control inflation. Central Bank of Nigeria should be probably elated with the recent development as inflation now stood below 10% but the struggle is not yet over. The increasing of interest rate to dry up the market excessive liquidity in order to achieve the desired goal of restraining inflation may have a reverse effect at some point. As the interest rate increases it will dampened economic growth by making the availability of credits and loans to tighten. The scenario may once again usher in credit crunch and the financial flow of liquidity in the capital market. This is not the result that CBN is trying to achieve, that it is why a comprehensive outlook is needed to continuous wrestle down inflationary trends.

The economy is cruising at 7.9 - 8 % and that is phenomenal by any standard. The growth must be jealously protected from the rising inflation that can quickly dent the economic growth and reverse the trend. The injections of surplus money into the circulation by the bailing out of the failed banks have in the past contributed to inflation. The continuous and excessive borrowing by Nigerian government by selling of the bonds must be done in way that too much money will not overheat the economy. Nothing is wrong with a country selling bonds and T-bills to investors but the raised funds must be diligently funneled into the economy by the way of investments.

Another methodogy that can be used to checkmate inflation is for Nigeria to live within its means. By this a planned budget must be sensible and it must be successfully implemented. When a government dabbles into excessive spending that will increase its current expenditure and in the long run have untold consequences. The ramifications may come in the retarding of the economic activities and the surging of inflation rate due to excessive liquidity in the market. When Nigeria lives within its means, there will be no need to aggressively raise the interest rate to combat inflation.

When the interest rate was raised to 8.75% at end of CBN's Monetary Policy Committee (MPC) session, it issued a statement that, "The Committee observed that the inflation outlook appears uncertain owing to the expected implementation of the new national minimum wage policy and the imminent deregulation of petroleum prices. Significant injection of liquidity from FAAC in the third quarter coupled with the impact of AMCON recapitalizing intervened banks to the tune of N1.6 trillion will both add to inflationary pressures." That is supposely the case but it is not the whole story; the excessive government spending and borrowing played a role to the state of inflation.

Investment in this case means to put money and resources on things that will enable the creation of wealth possible. Investments should go into the provision of infrastructures and social amenities that are needed by the citizens and capitalist for further creation of wealth and upliftment of the wellbeing of the society. The Nigerian government should do its best possible to provide electricity, good roads and security. The security in this case becomes imperative for the protection of life and property, which is the most important function of a given government.

But there are also coming attractions to the economy according Samir Gadio, an emerging markets strategist at Standard Bank Group Ltd that makes outlook on inflation “uncertain.”  Those coming attractions include the doubling of "the monthly minimum wage to 18,000 naira ($116) and to deregulate fuel prices, central bank Governor Lamido Sanusi said last month. Core inflation, which excludes food, will probably accelerate in the second half of the year." These activities have the propensity to increase inflation.

Nigeria must look into the cutting down of importation of food commodities especially rice that can be grown in Nigeria. The less reliance on importation, less spending and less borrowing can bode well for a sound economic standing devoid of higher inflation.

The Rising Inflation Rate contradicts CBN policy and its measures

The report coming from National Bureau of Statistics (NBS) is not a good news for Central Bank of Nigeria (CBN) because the inflation rate was reported at 12.4 percent. The recent numbers from NBS have shown that inflationary trends are not cooling down but rather are surging. The composite Consumer Price Index (CPI) stood at 12.4 percent; CPI is used to measure inflation level in the country. This is disappointing phenomena because it does not bold well neither it is conducive for economic growth. While inflation rate of month of April was 11.3 percent, the increasing rate of April has shown that CBN may be losing the battle at arresting the inflationary enemy as they promised.

The tightening of the monetary policy maybe losing its grove, and it is beginning to look that it is beyond the power of CBN's application of monetary policy that comes with tinkling of the interest rate to reduce inflation. The usage of interest rate tinkling to control inflation may has limited effect and maybe waning. Nigerian economy has structural problem that must be corrected to be able to control inflation. The importation of essential commodities with its rising prices and the rising prices of food, petroleum and accommodations are causing the rising inflation.

Obinna Chima, financial Reporter at Thisday wrote, "Worried by rising inflationary pressure in the country, the Monetary Policy Committee (MPC), which is chaired by the CBN Governor, Mallam Sanusi Lamido Sanusi, had surprisingly raised the Monetary Policy Rate (MPR) from 7.5 per cent, to 8 per cent at its last meeting. The Committee which also lifted the Cash Reserve Requirement (CRR) had expressed its desire to battle inflation which has stubbornly remained at double digits, to single digit rate.

Most analysts attributed the hike in inflation to the rise in price of some household items, building materials and rents. They specifically pointed out that the high cost in kerosene and diesel contributed to the significant rise recorded in the CPI."

National Bureau of Statistics (NBS), "The urban ‘All Items’ monthly index rose by 0.2 percent while the corresponding rural index rose by 1.5 percent when compared with the preceding month. The year-on-year average consumer price level as at May 2011 for Urban and Rural dwellers rose by 11.5 and 13 percent respectively.

"The percentage change in the average composite CPI for the twelve-month period ending May 2011 over the average of the CPI for the previous twelve-month period was 12.6 per cent. This was slightly lower than the figure for the preceding month. The average monthly food prices declined by 0.3 percent in May 2011 compared with April 2011 figure. The level of the Composite Food Index (CFI) was higher than the corresponding level a year ago by 12.2 percent."

Nigerian government has been increasing spending while at same time having large trade deficits with some trading partners due to increased spending and importation. Another source of the rising inflation may come from the massive and continuous borrowings of the Federal Government of Nigeria. Nigeria has been borrowing heavily lately in order to finance the rebuilding and renovations of infrastructures.

The myriad issues that contributed to the rising inflation including the massive amount of money injected into the circulation to ease credit crunch. The recapitalization of the failed banks and the buying of the toxic assets of the failed banks introduced equally a large sum into the monetary base.

The scarcity of petroleum products especially kerosene with the long queuing lines in Lagos and rest of the country has brought about hoarding and subsequent higher price. The refining of oil outside Nigeria and importation of petrol at this era of the global rising prices of petroleum are major contributing factors to inflation. Things of these nature and others are triggering higher inflation rate and rising inflationary trends.

Nigeria’s Inflation rate increased from 11.1 percent to 12.8 percent

The inflationary pressure is escalating and at 12.8 percent inflation rate recorded at the ending of first quarter of 2011 is not showing any sign of coming down. According to the data coming from the National Bureau of Statistics (NBS) the February inflation rate stood at 11.1 percent and since then has increased to 12.8 percent at the month of March.

The Central Bank of Nigeria (CBN) maybe gradually losing its grip on the rising inflation with its primarily application of monetary policy and should sought the aid of the presidency to utilize trade and fiscal policies to solve the problem of the persistent double digit inflation.

The difference between months of February and March Composite Consumer Price Index (CPI), a tool to measure inflation rate stood at 1.37 percent. That is not a good development.

The deduction to be made is that the power of monetary policy that comes with the usage of interest rate to hold a grip on inflation is waning. A while ago the Central bank of Nigeria raised the monetary policy rate from the previously 6.5 percent to 7.5 percent but it did not necessarily have any effect on the surging inflationary trend. Instead of the interest rate to be de-escalating rather it is accelerating at 1.7 percent, giving the month of March a higher interest rate at a double digit of 12.8 percent.

The Governor of Central Bank of Nigeria (CBN), Mallam Sanusi Lamido attributed the surging inflation to rising food prices and energy cost. There is no doubt that the chieftain of CBN understood quite well what the beef is all about. But the reasons he tendered for the rising inflation are secondary and insufficient. The fundamental problem that Nigeria has is its major reliance on importation for essential commodities needed in the country. These are the primary problems that are making the inflationary pressure to be going up. Nigeria imports food, textiles and refined petroleum from abroad. The domestic oil refineries are not producing at optimum levels and importation becomes necessary with the subsidy.

In the consumer price Index (CPI) food and energy products are quite significant because these are products needed by all the sectors of the population for surviving and for the economy to thrive. With these importations Nigeria is exposed to global changes in prices of food and

petroleum products. Therefore as the prices of oil and food increases due to global demand and anxiety in the market that subsequently has effect on economy of Nigeria and put untold pressure on inflation.

The lowering and control of inflation in Nigeria for sustainable growth must be strategically planned and implemented. Monetary policy with its Interest rate can be utilized as in tactical approach to limit the power of inflation at a short term but in long term more should be done. The idea is to maintain a sustainable inflation rate at a single digit for a long term economic growth and development.

The executive of the government has an important role to play in shaping the economic destiny of the nation and not abandoning the battle to defeat and tame inflation to the bureaucrats at Nigerian apex bank. To all and sundry it is becoming self-evident that the tightening of monetary policy has a limited effect in long term prospects waned and as the fundamental problems that plagues the economy persisted.

The Nigerian annual economic growth is cruising at a comfortable level of above 7 percent but the increasing inflationary pressure is about to do one or two to the economy. Inflation by discouraging of the investors and by severely weakening of the country's currency naira can slow down economic growth and probably reverse the net gain effect.

This is not the time for government to fold their hands and become reluctant observer. But no one is asking the executive arm of the government to weaken the independence of the Central Bank by intervening in the affairs of the autonomous apex bank. The financial actors and the Economic gatekeepers in the government must be pro-active, strategic and pragmatic. The executive arm must be serious about cutting down on importation and fixing the oil refineries in the country to avoid refining of petroleum abroad.

This is time to be serious and not time for empty postulations, for we all can agree on what must be done. The government should work with textile and cement importers to find ways to slow down importation while increasing the usage of local materials for production. Nigeria has abundant raw materials for manufacturing cement and textile. The importers should be given tax breaks and other incentives that will compel them to look into local production with the home grown raw materials.

The rising price of food including corn and rice are contributing to the rising inflation. There is a global demand for some of Nigeria's staple food that is imported. Nigerian government should be in partnership with large scale domestic farmers without being overbearing to them. Investment in research and development in the agriculture becomes necessary in order to find the solution to the problems of food storage and preservation. Food preservation will be needed to boost higher food production and sustainability therefore cutting down on food importation. Monetary policy as tool to control rising inflation is waning therefore CBN must look beyond its monetary policy tool to cool off inflationary rising temperature.

Emeka Chiakwelu is the principal Policy Strategist at Afripol. 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.

Central Bank of Nigeria (CBN) targeted 10percent inflation rate

There is good news coming from Nigeria’s National Bureau of Statistics (NBS) on inflation. It was reported that the February rate of inflation has receded to an annual 11.1 percent. Although the targeted rate by the country’s apex bank, Central Bank of Nigeria (CBN) was 10percent. The key point is that the inflation rate is receding and may likely come down to the CBN’s 10 percent target.

The myriad issues that contributed to the rising inflation including the massive amount of money injected into the circulation to ease credit crunch. The recapitalization of the failed banks and the buying of the toxic assets of the failed banks introduced equally a large sum into the monetary base.

The problem that summons the greatest barrier to the control of inflationary trends might be the rising price of oil that has increased above $100 per barrel. On one hand it is good because it will swell and increase the country’s decreasing foreign reserve due to excessive withdrawal. But on another hand since Nigeria refined 70 percent of her domestic consumed gasoline outside the country together with the inherent subsides would make it difficult for CBN to be consistent and to have smooth operations.

Bloomberg reported that "While　Nigeria　is　Africa’s biggest oil producer, it relies on fuel imports for more than 70 percent of its domestic needs because of a lack of refining capacity. The government subsidizes domestic fuel prices, boosting its spending as oil costs rise, increasing pressure on inflation.　Crude oil reached $106.95 a barrel on March 7, a 29-month high."

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But for now the price of oil was recorded less than $100 per barrel due to the lower demand as a result of the natural disaster that took place in Japan. But the rise of oil demand is likely to increase with the price eventually as Japan will need more energy to replace the collapse of nuclear technology.

Nigerian government has been increasing spending while at same time having a large trade deficits with some trading partners due to increased spending and importation. Another source of the rising inflation may come from the massive and continuous borrowings of the Federal Government of Nigeria. Nigeria has been borrowing heavily lately inorder to finance the rebuilding and renovations of infrastructures.

Rising Inflationary trend is the most persistent threat to Nigeria’s growing economy. 　The Central Bank of Nigeria and its monetary policy committee voted to lift the benchmark interest rate of previously 6.25 percent to 6.50 percent last time they met. Before that at the end of fourth quarter of 2009 when the monetary committee gathered, they left the interest rate unaltered at 6.25 percent. The inflation rate then was exceeding 13 percent although its surging momentum has since receded, yet inflation rate is still above 10 percent in the first quarter of 2011.

The 　governor of Central Bank of Nigeria (CBN) promised to hold back inflation below 10 percent last year but 　inflation rate is still moving upward in spite of the tighten of the monetary policy. Sometimes the CBN can be overly cautious with its application　of monetary instrument to stem down inflation. When the benchmark interest rate was retained last year, Afripol financial experts commented on the timidity of the monetary policy committee in not raising the interest rate in the face of rising and persistent inflation.

Nigeria has injected a lot of money into the monetary base to recapitalize the banks that were bailed out from total collapse due to mismanagement. 　Nigeria recapitalized the banks with almost $4 billion and Nigeria’s Asset Management Corporation (AMCON) is buying back toxic debts from bad banks at the tune of $14 billion. The liquidity flowing into the economy due to quantitative easing has the tendency to overheat the economy, thereby triggering inflationary trend. 　At same time the quick economic growth that attracts investment can over stimulate the economy and keep the inflation surging.

On the borrowings of large amount of money, Nigeria's debt-to-GDP ratio may be minimal but that will not be an inducement for excessive borrowing. All the borrowings are bringing in a lot of money into the circulation and that too can exert inflationary pressure on the economy. 　The borrowings Nigeria made last year was enormous but it is not cooling off in 2011. Reuters reported that "Sub-Saharan Africa's second biggest economy (Nigeria) 　plans to issue 66.5 billion naira in February, including 36.5 billion naira in three-year and 30 billion naira in five-year bonds. For March, the DMO said in its offer calendar it would issue 30 billion naira each in three-year and five-year paper."

There is a success story with the policies of Central Bank of Nigeria (CBN) on restrictions of inflation so far. To continue with the good result and to further cut back the receding inflation in Nigeria’s economic landscape, the Central Bank of Nigeria (CBN) will likely to continue with the tightening of its monetary policy and probably persuading the executive branch to cut down in spending.

Sanusi‘s Central Bank of Nigeria raised interest rate to  6.50 percent

Rising Inflationary trend is the most persistent threat to Nigeria’s growing economy.   The Central Bank of Nigeria and its monetary policy committee voted to lift the benchmark interest rate of previously 6.25 percent to 6.50 percent. The last time the monetary committee gathered at the end of fourth quarter of 2009, they left the interest rate unaltered at 6.25 percent. The inflation rate then was exceeding 13 percent although its surging momentum has since receded, yet inflation rate is still above 10 percent in the first quarter of 2011.

The  governor of Central Bank of Nigeria (CBN) promised to hold back inflation below 10 percent last year but  inflation rate is still moving upward in spite of the tighten of the monetary policy. Sometimes the CBN can be overly cautious with its application of monetary instrument to stem down inflation. When the benchmark interest rate was retained last year, Afripol financial experts commented on the timidity of the monetary policy committee in not raising the interest rate in the face of rising and persistent inflation.

Then Afripol commented that, “The Monetary Policy Committee of CBN is cautious in not altering the interest rate for fear of spurring any changes in the economy.  But their timidity is not justified because inflationary trend is rising and infusion of the funds is not going to slow it down. Therefore it is logical that Monetary Policy Rate (MPR) at 6.25 percent be increased not retained. Again Nigerian economy is expected to grow up to 10 percent in the preceding year and together with inflow of cheap money from both foreign and domestic investors may spur higher inflation.”  Therefore it may be little late, but the lifting of the benchmark interest rate will still be contributing in stabilizing and revising the inflationary trend.  But this is not the time to pass judgment on the process, for the key thing is to do the right thing for the economy and financial wellbeing of Nigeria.

Mr. Vincent Ogboi, an economic and financial expert at Afripol stated, “Rising inflation does not booster well for a progressive economic growth. Governor Sanusi must focus on inflation as a laser beam, with monetary policy at his disposal to bring the inflation rate to a single digit. One thing is to lower the inflation but another is to make it sustainable for long term economic growth. The rising prices of agricultural products and hydrocarbon need an intervention of the executive and legislative arms of government in plotting a strategy to revolutionize agriculture and energy sectors of the economy.

Ogboi further stressed that, "Nigeria must not forget that the time is now to diversity her oil based economy. Nigeria must harness her human capital and use it to her full advantage. Oil resources may not last forever but human capital with a large population base is going nowhere soon”

What’s the deal with the rising inflation?

Without doubt, Nigeria’s economic fundamental is relatively healthy. The GDP is growing at an impressive rate. The growth annual rate of 2010 was about 7.8 percent with a striking 8.29 percent at fourth quarter of last year and the economy is expected to grow above 8 percent in 2011. Naira is relatively strong when compared to dollar, in spite of the continuous withdrawal from Nigeria‘s foreign reserve which act as a war chest against aggressive currency speculators. The minister of finance was forecasting a more liberal growth of 10 percent on the grounds that infrastructures and electricity will be upgraded and improved. The level of investments flowing into the economy and Nigerian stock exchange are quite impressive.

Nigerian agricultural products. Photo: Sunday Adedji

Nigeria has injected a lot of money into the monetary base to recapitalize the banks that were bailed out from total collapse due to mismanagement.  Nigeria recapitalized the banks with almost $4 billion and Nigeria’s Asset Management Corporation (AMCON) is buying back toxic debts from bad banks at the tune of $14 billion. The liquidity flowing into the economy due to quantitative easing has the tendency to overheat the economy, thereby triggering inflationary trend.  At same time the quick economic growth that attracts investment can over stimulate the economy and keep the inflation surging.

On the borrowings of large amount of money, Nigeria's debt-to-GDP ratio may be minimal but that will not be an inducement for excessive borrowing. All the borrowings are bringing in a lot of money into the circulation and that too can exert inflationary pressure on the economy.  The borrowings Nigeria made last year was enormous but it is not cooling off in 2011. Reuters reported that “Sub-Saharan Africa's second biggest economy (Nigeria)  plans to issue 66.5 billion naira in February, including 36.5 billion naira in three-year and 30 billion naira in five-year bonds. For March, the DMO said in its offer calendar it would issue 30 billion naira each in three-year and five-year paper.”

The achieving of lower inflation cannot be left only to the reserve bank. All the branches of the government and economic sectors have roles to play. Government will deliberately encourage the consumption of local manufactured products. Agriculture must be improved not only in preservation and storage but availability to all the corners of the country is intrinsic. This is where the improvement of transportation and infrastructure comes in.  The over creation and printing of naira must be decelerated no matter how tempting it might be.

Governor of Central Bank Nigeria and its monetary policy committee have to be on top of the issue of rising inflation. The problem of inflation can retard economic growth and dwindling away gained economic progress.  In case of Nigeria with a problem of high unemployment, inflation can make matters worse by discouraging research and development. The ramification is that employers will have no appetite to produce and hire in economy weaken by inflation.

Afripol recommends higher Monetary Policy Rate to counteract rising inflation

Central Bank of Nigeria (CBN) and its Monetary Policy Committee have decided to maintain the current benchmark interest rate at 6.25 percent. The retaining of the Monetary Policy Rate (MPR) at 6.25 percent was a surprise. Although there were no big changes in the economy and the economy was supposedly cruising at a steady pace at 7.9 percent for the full year growth. But that is not the complete picture, the large infusion of funds for rescued banks and reconstructions are likely to overheat the economy, subsequently triggering higher inflationary trends.

The once vulnerable banking sector with failed banks is being corrected. Initially the failed five banks were rescued with infusion of almost $4 billion dollars and the managing directors were sacked. And now, AMCON a state owned and controlled entity was set up to buy back toxic debts from ten banks at the tune of $14.6 billion dollars. The steady and large inflow of funds will definitely ease the credit crunch but it will likely increase the inflation. Therefore it was anticipated that a bump up of the interest rate to at least 7 percent should counteract the anticipated inflationary trend and the control of cheap money. Inflation looms as more spending and investment increases the economic output.

The Monetary Policy Committee of CBN is cautious in not altering the interest rate for fear of spurring any changes in the economy.  But their timidity is not justified because inflationary trend is rising and infusion of the funds is not going to slow it down. Therefore it is logical that Monetary Policy Rate (MPR) at 6.25 percent be increased not retained. Again Nigerian economy is expected to grow up to 10 percent in the preceding year and together with inflow of cheap money from both foreign and domestic investors may spur higher inflation.

The issue of the rising inflation is real; at the last quarter, inflationary rate was above 13 percent even with the promise made by Governor Sanusi Lamido Sanusi of Central Bank to keep inflation below 10 percent at the fourth quarter of 2009. The economy at fourth quarter of 2010 is expected to grow at 8.3 percent in December compares to 7.9 in September. The rapid and increasing growth is putting pressure on inflation. The application of the latent monetary policy appears to be the last resort of the apex bank and it should be boldly but vigilantly applied to stem down inflation.

Africa Political & 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.

Nigeria’s economy is churning along after the problems of liquidity and banking sector meltdown that nearly crushed the financial market. The economy is progressively in recovery and it looks like the confidence of Nigerian consumer is gradually rebounding. But we cannot say for sure the exact figure because quantification of confidence has not been documented nor recorded. All the economic indicators are pointing in affirmative and right direction. Therefore the economy can be say to be relatively healthy, the key economic indicators including the inflation rate is at 11% in the month of May. The increasing inflationary pressure which subsided from 12.5% to 11% year-on-year is a good response and these recent indices were documented by Nigeria’s National Bureau of Statistics (NBS). The food price inflation also came down in the second quarter from 14.3% in to 12.3, a sign that the gripping hands of inflation around the economy is waning.

Without doubt the monetary policy coming from Sanusi’s Central Bank of Nigeria (CBN) has a positive outlook on the economy which has been growing at the rate 7.3% and attracting investments mostly in petroleum sector.

The "revised estimate for real Gross Domestic Product (GDP) by the National Bureau of Statistics (NBS) indicates that the economy grew by 7.23 percent first quarter of 2010 as against 6.7 percent it had earlier projected for the quarter." This is impressive compares to the world economy that has been expected to be growing at the rate 3.9 % in 2010 as result of the global recession.

The greatest threat to Nigeria’s standard of living other than inflation is unemployment; even with progressively growing economy at the rate of 7.3% the economy is not producing enough jobs to make a reasonable impact on employment. The Finance Minister Olusegun Aganga stated that unemployment in Nigeria was about 19.7% but financial and economic experts at Afripol Organization quantified that the real unemployment figure might be higher when rural and urban joblessness among the Nigerian youths are factored into equation. The collecting of data on employment will be probably cumbersome, if not difficult in rural areas where modern technology is scare and out of reach.

It must be noted that Nigeria has trade surplus with many western countries including United States at the tune of $5.5 billion. The executive arm of the government must work hard to rectify the inability to successfully implement the federal budget as it was written. As a result of shortfalls from oil revenue, Nigeria proposed issuing bonds of about N867.5 billion to finance its deficit. On the financing of budget deficit including the 2010 current expenditure the Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo reminded Nigerians that government is now borrowing from the capital market and particularly by issuing bonds to raise money. On borrowing Dr. Nwankwo did emphasis that: "Borrowing is a normal feature of all economies. Nigeria is currently one of the lowest in terms of ratio of debt to GDP (Gross Domestic Products). This does not mean Nigeria is doing well, as what is more important is whether the proceeds is being used judiciously." Therefore it is imperative that borrowed money or any money allotted for the budget is prudently utilized in its implementation.

President Jonathan reaffirmed the deficit issue on the letter he wrote to the lawmakers: "Specifically, recent revenue developments indicate significant shortfalls in both oil and non-oil revenue which may well continue for the rest of the fiscal year with adverse implications for the financing of the budget. Consequently, given the recent drop in international oil prices from over US$80 per barrel to under US$70 per barrel; it is prudent to revise the oil bench mark price to a more realistic level." He further states that, "The 2010 budget was predicated on a revenue benchmark of $67 per barrel of crude oil. But in his letter to the Senate, President Jonathan asked it to "revise downwards the aggregate level of expenditure from the N4.608billion approved in the 2010 Appropriation Act and adjust the budget details accordingly."

Daily Trust editorial, added: "In a bid to balance the budget, the federal government has also resolved to borrow from domestic and foreign sources. The 2010 budget will receive $500 million USD (N75 billion) from international bonds and has projected to borrow N897.3 billion from an already ailing domestic financial system. Several banks in the country have for several months survived on life line provided by the Central Bank of Nigeria (CBN) but the federal government still expects to suck such huge amount to finance the budget deficit."

The manufacturing sector recorded a lower output from " 7.03 percent in 2009 to 6.43 percent in 2010" due to lack of electric power and paucity of credit. Nigerian manufacturers do import a reasonable amount of raw materials from abroad and foreign exchange becomes an impediment to free flow of raw materials coupled with the government higher tariffs.

Mr Aganga, Nigerian minister of finance and a former managing editor at Goldman Sachs expected the economy to grow at 10 percent by 2012. According to him, Nigeria is making the requistive moves especially with rebuilding of the infrastructure, diversification and privatisation to ensure the positive economic growth.

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.

Analysis and commentary by Emeka Chiakwelu     This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Central Bank of Nigeria (CBN) have infused the total sum of N600 billion naira ($3.96 billion) into the Nigerian banking sector to recapitalize the banks that have been plagued with liquidity crisis and credit crunch caused by excessive lending, profligacy and corruption.

The recent audits of the Nigerian banks by the Central Bank of Nigeria (CBN) have exposed the inefficiency of the banking sector. When the new governor of Central Bank came in he found out that some major banks were poorly managed and that corruption has eaten deep into the fabric of Nigerian banking system. Therefore the boss of CBN Mr. Sanusi Lamido Sanusi committed himself into cleaning the financial mess.

Mr. Sanusi Lamido Sanusi the newly appointed chieftain of CBN conducted initial audits of the some of the banks. "Those audits revealed that five banks holding 30% of Nigeria deposits – Afric Bank, Fin Bank, Intercontential Bank, Oceanic Bank and Union Bank were on the brink of collapse due to reckless lending." There was a lax in the system and it was revealed that many loans made to some of the banks’ customers were neither repaid nor serviced but were left dormant.

The CBN bailed out the five banks with 400 billion naira. The managers of the banks were sacked and those customers including many important business tycoons and respectful bureaucrats were compelled to pay back those bad loans.

The governor of Nigeria’s apex bank Mr. Sanusi Lamido Sanusi went further with comprehensive investigation and audits of the entire banking sector. The audit findings including: lax in regulation, credit strangulation and low holdings among many banks. Due to the plunge in the deposit holdings among many of these banks, there was credit crunch in the system. The business cannot raise adequate capital from the financial institutions due to paucity of liquidity in the system.

Again the Central Bank of Nigeria on October 2 recapitalized another four banks at the amount of 200 billion naira - "Bank PHB, Equatorial Trust Bank, Spring Bank and Wema Bank -- also judged to be facing a grave liquidity risk."

Replenishing the holdings of the banks was a great move by the CBN, for that will make credit available to the business community and consumers. But that will not be the panacea to the problems of the Nigerian banks, which compels a comprehensive and invasive restructure of the banking system.

Sansui‘s Central Bank must re-evaluate the rules and regulations and come with more stringent regulations that will close all the loopholes in the system. The regulations must be enforced aggressively with verifiable checks and balances. The frequency of the audits must be increased together with random audits can become a deterrent mechanism to inhibit the weakness in the system.

Re-capitalization and bail out of the banks with this large sum of money - N600 Billion naira -may loom inflation. At the moment in Nigeria the inflation is hovering around 10-10.4% and it’s expected to dip below 10% in the next quarter. Therefore the commercial banks must be instructed to be meticulous in their lending in order to avoid excessive money in the circulation that might trigger inflation. Subsequently undermining the value of naira and further depreciation of already weaken naira.

When CBN prints and borrow money to recapitalize the banks that may lower the Nigerian credit worthiness. And it may unleash higher inflation and the devaluation of naira. When CBN finances its recapitalization by withdrawing excessively from the foreign reserve, it poses a threat to value of naira and credit standing of the country.

Mr. 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.