Nigeria's Economy And CBN: Inflation Rate May Rise Above 15%


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.




Emeka Chiakwelu is the Principal Policy Strategist at Afripol

Organization. Africa Political and EconomicStrategicCenter (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. This email address is being protected from spambots. You need JavaScript enabled to view it.



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