- Category: DANIEL ELOMBAH
- Published on Thursday, 22 January 2009 16:23
- Written by Daniel Elombah
Twenty-four hours after Barack Obama became the 44th President of the United States of America, the Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, has warned that the energy policy of the new administration may spell doom for the Nigerian economy.
He said Obama’s proposed vigorous search for alternative energy to drive the world's largest economy poses “great dangers” for Nigeria whose economy is highly dependent on revenue from oil.
Nigeria is the fifth largest exporter of crude oil to the US.
Soludo said although the global economic recession which began in the United States had started to take its toll on Nigeria in terms of the crash in the price of crude oil, declining revenue, depleting foreign reserves and pressure on the exchange rate, Nigerian banks remained “robust enough to withstand the shock waves hitting the economy”.
Soludo, who gave these explanations at an interaction with the House of Representa-tives Committee on Banking and Currency, said the impact of the global economic and financial crisis would have hit Nigeria harder if the central bank had not initiated the consolidation of the banking sector two years ago.
He spoke to an obviously sceptical audience as most of the lawmakers kept prodding behind the economic policies of the apex bank.
He, however, said the Nigerian government must take urgent measures to diversify the economy especially towards agriculture since the crash in the price of crude oil in the international market may worsen if the search for alternative sources of energy begins to bear fruit.
Soludo said with the limited foreign trade finances being witnessed by Nigerian banks, credit lines may dry up for some banks and Nigeria may return to the scenario in the early 1980s when government at all levels was broke and unable to pay salaries.
According to Soludo, the recent downturn witnessed in the Nigerian capital market as a result of the divestment by foreign investors may subsequently lead to possible second round effects on the balance sheets of some banks and decreasing profitability, “but the banks are not significantly under threat and are not likely to witness large scale losses.
"With the Obama government proposing to invest heavily on alternative energy sources, there is a permanent threat to oil as mainstay of the Nigerian economy. Unless we take urgent steps to address the situation by also finding an alternative to oil as the mainstay of our economy, we might be back to the similar crisis we witnessed in 1982 when the price of oil crashed, government revenue declined and it became difficult for government at all levels to pay salaries. There was also the abandoned projects syndrome, increased import of almost anything until government was forced to place a ban on foreign currency trafficking because it was being abused," he said.
Owing to the falling commodity prices abroad as well as declining freight costs, Soludo explained, Nigerian businesses may find increasing appetite for foreign and imported goods which will threaten the domestic industrial productive base.
Other threats include the fact that the declining oil price might be worsened by the militancy in the Niger Delta with its attendant shut-in of oil production and possible political pressure to spend the "excess crude" earnings.
He said although Nigeria's foreign reserves currently stood at $52billion, the Nigerian economy like other economies of the world would be exposed to more risks if the United States dollar which serves as the global reserve currency begins to experience “spiral inflation” and triggers off a global currency crisis.
But Soludo's testimony before the lawmakers was not all gloom as he announced that unlike in 1982, the Nigerian economy, though not insulated from the global crisis, was better prepared to withstand the shock.
He said with the debt relief effectively saving about $4billion in annual debt service payments, a banking sector consolidation that has increased competitiveness, robust external reserve, a liberalised and private sector-led economy, an active capital market as well as better fiscal and monetary policy regimes, the country has great opportunities to scale the hurdles posed by the global recession.
“The challenge we have is to get agriculture to boom. We have huge growth reserve to be exploited - about sixty per cent of arable land for agriculture remains fallow; solid minerals and gas are yet to be fully harnessed. Nigeria may continue to attract Foreign Direct Investments (FDIs) particularly in the oil and gas sector and portfolio inflows due to high returns on investment.
“Lower world prices will benefit Nigeria because of her large imports. This time, we should target strategic capital investment in sectors where input prices are depressed globally with lower freight costs. Our banks are Nigeria's multinational companies and have become increasing dominant source of financing for the economy giving more credit to the private sector than the Federal Government and also supporting the state governments. Banks constitute the engine of the economy for the near term which must be guarded," he said.
On the way forward, the CBN governor said that the apex bank would remain committed to stable exchange rate regime and monitor developments in the capital market as a stable exchange rate would continue to be a major shock absorber for the economy to maintain its internal and external balance.
Meanwhile, President Umaru Musa Yar’ Adua has joined the world to congratulate the new US President.
Yar’Adua spoke through the Minister of Foreign Affairs, Chief Ojo Maduekwe, who led the Nigerian delegation to Obama’s inauguration.
At the inaugural ball organised by Washington, DC-based NGO, “Africa Aspire,” President Yar’Adua, praised the “inclusiveness, solidarity and generosity” of the American system, which produced the first African-American president of the country.
The minister told the audience that the people of Nigeria and Africa rejoice with America on this historic swearing-in ceremony.
“We are proud that America gave this opportunity to the son of an African immigrant. We want to say in the same spirit that Africa supports Obama to succeed. His success is ours... Africa has taken a turn for the better,” he declared.