The slowing down of the economy may be partially attributed to lack of
structural reforms as was enunciated by Sanusi. But the crust of the
matter was the partial removal of the fuel subsidy that brought about the
increase of cost of living and production. The country’s economy is run on
fossil energy and by removing the subsidy it triggered higher inflation
rate which now stood at 12.9 percent.
Sanui’s Central Bank of Nigeria (CBN) anticipated inflation rate to rise
and hover between 14-15 percent in 2012 but that will not be so. With the
economic trends and the way things are going inflation rate will
accelerate over 15 even up to 16 percent by the end of the year. And if
the fuel adjustment program continues and the total removal of fuel
subsidy becomes imminent the inflation rate may rise above 16 percent.
With such an increase in the inflation rate, the country’s economy will
definitely slow down even below the projected 6.5 percent for 2012.
Nigeria has not yet appreciated how fickle the economic growth and
inflation can become. The targeted mission of the policy makers both at
CBN and presidency should be to maintain a healthy balance between
monetary and fiscal policy in order to checkmate inflation and safeguard
economic growth. There is so much CBN can do with the tinkering of the
interest rate and with quantitative easing. These monetary tools are
limited in action when faced with an accelerating inflation trends and
undiversified economy like that of Nigeria.
The state of the country is becoming un-conducive for a sustainable
economic growth apart from oil sector of the economy. The growth in
agriculture is expected to “declined to 4.15 per cent compared with 5.54
per cent in Q1 of 2011 and 5.74 in fourth quarter 2011,” as CBN governor
said at the end of the two-day meeting. And “crude oil production was
estimated to have declined by 2.32 per cent in quarter one 2012 compared
with the decline of 2.41 per cent in the corresponding period of 2011. Non
oil real GDP growth estimated at 7.93 per cent in Q1 of 2012 was much
lower than 8.73 per cent recorded in Q1 of 2011.”
This is not good news for Nigeria. The social unrest and political
turbulences are making investors anxious and their comfort level and
commitment on Nigeria’s economy is diminishing. This will encourage
capital flight and fear for investing in Nigeria, moreover indigenous
capitalists may even recoil their commitment for further capital
investments in the economy.
The only good news coming from Sanusi’s CBN is the Nigeria’s external
reserves which increased from $36.66 billion in April to $38.72 billion in
May. The buildup of the reserve is a good thing. Reserve can become a war
chest against currency speculators and Naira appreciation can be enhanced
with an increasing foreign reserve. But it is important that some of the
resources coming from the sale of oil should be diverted to Nigerian
sovereign wealth fund and provision of infrastructures. Nigerian
sovereign wealth fund should be investing in a well tested market where
risk is at lowest minimum for a good return to the country.
The legislature move to remove the autonomy of the Central Bank of Nigeria
(CBN) is a bad news. The country needs an independent monetary policy
institute that does its job without control from the executive and
legislature. Look around the world there is no advance and developed
economies without independent Central Banks. When the power of Central
Bank is compromise and weakens by outside interference, investors trust on
the economy will virtually dissipate and disappear. The decisions and
monetary policy coming from Central Banks will not be acceptable as real
when Central Bank depends on the whims of the executive and legislature
arms of the government. The quest to remove CBN’s autonomy is “no go
A bastardized and compromise CBN is good for nothing institute, that is
why that it is intrinsic that the autonomy of CBN must remained in tact.
The government must rekindle its effort to reassure investors, capitalists
and citizens that protection of life and property is its utmost duty by
the country’s leadership.
The upgrades of electricity infrastructures must be speed up for Nigerians
are sick and tired of living in darkness at the dawn of 21st century. The
provision of social infrastructures, political stability and quantifiable
peace must be in place for sustainability of economic growth. The heavy
lifting of structural reforms should come into play but the rudimentary
steps to the reforms are to provide and build on the basic tools that are
needed for a growing economy.