Sunday, October 17, 2021
Add this page to Blinklist Add this page to Add this page to Digg Add this page to Facebook Add this page to Furl Add this page to Google Add this page to Ma.Gnolia Add this page to Newsvine Add this page to Reddit Add this page to StumbleUpon Add this page to Technorati Add this page to Yahoo

ideas have consequences

You are here:Home>>All Expert Articles>>Displaying items by tag: CBN
Displaying items by tag: CBN

The Central Bank of Nigeria (CBN), the country’s supremely reserve bank has made a decision of hiking the interest rate from 11% to 12%. It was puzzling to many financial and monetary observers because it was less than three months that CBN reduced the interest rate from 13% to 11%. Then it appeared that the monetary policy was gearing towards enhancement of liquidity, but the latest u-turn has thrown cold water to the pursuit of liquidity.

The reversal by CBN was triggered by the rising inflation and the logical step at its disposal was to restrict and constraint monetary policy. With the weakening of oil price and paucity of foreign exchange, the import based economy of Nigeria is suffering greatly. Nigeria being a recalcitrant country has refused to diversify her economy and failed to invest timely on agriculture, where she enjoyed the maximum comparative advantage.

Many essential commodities and food products are still imported and whenever there are restrictions in importation, it does trigger inflation.  Those that bear the greatest brunt of inflationary trends are poor Nigerians.  About 85 % of the population are living with stagnant or no income and are surviving with less than one dollar a day.

Due to the nosedive of oil price, country generated limited foreign exchange; therefore importers rely on the parallel market for acquiring of foreign exchange at a much more exorbitant price.  With fewer products in the market, the prices of food products will go up and those consumers with fixed income are barely surviving in the consumer market.

In order to checkmate the surging inflation, CBN resort to hiking of interest rate.  The mopping of liquidity has its downside for it will principally depress business expansion and commercial growth.  The prospect of solving the issue of inflation becomes more elusive, if not dim because of the circumstances Nigeria found herself.   One of the matters rising from constraints of monetary policy is the emergence of illiquidity.  It implies that the interest rate of borrowing will be higher and that is a major discouragement to the business community and marketers.

The inflationary trend will not be resolve by hiking of the interest rate; Nigeria’s problem is much deeper than that. Despite the attraction of higher interest rate, the investors are not coming because of country’s debilitated infrastructures, poor image, remittance policy and price instability.

This is just the beginning; the more hiking of interest rate appears to be the call of the future because inflationary pressure is not going to ease due to 1% hike.  The country’s reserve bank has demonstrated its limited monetary policy contribution that may become waned in face of daunting challenges as the fiscal policy of the executive is struggling to define itself.

Emeka  Chiakwelu, Principal Policy Strategist at AFRIPOL. His works have appeared in Wall Street Journal, Huffington Post, Forbes and many other important journals around the world. His writings have also been cited in many economic books, publications and many institutions of higher learning including tagteam Harvard Education. 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.   This e-mail address is being protected from spambots. You need JavaScript enabled to view it


Godwin Emefiele  has been screened and confirmed  as the Central Bank Governor designate by   Nigerian upper house, the country's Senate. The procedural screening lasted for almost 3 hours.


During the confirmation and screening Central Bank Governor designate, Godwin Emefiele narrated his vision for Central Bank of Nigeria (CBN) and said that a stable and strong naira will ensured "that Nigeria maintained a strong exchange rate."


He emphasized that the devaluation of naira is not in his picture of achieving  a sound macro-economic stability and strong exchange control.


Emefiele will replace Lamido Sanusi, the suspended CBN boss that was let go by President Jonathan  for alleged financial misplacement and mismanagement. Emefiele's new position will commence  in June at  the expiration of Sanusi's term.


In Emefiele there is a strength of greatness and prudence that will manifest in his new assignment. As Nigeria emerged as a favorable destination of investments and capital, the governor of Central bank of Nigeria has an active and significant role to play in sustaining Nigeria's growth and attraction of investments with a prudent monetary policy. T


About Godwin I. Emefiele


Mr. Godwin I. Emefiele serves as Chief Executive officer and Group Managing Director of Zenith Bank Plc. Mr. Emefiele served as Deputy Managing Director of Zenith Bank Plc. since 2001. He served as Executive Director in charge of Corporate Banking, Treasury, Financial Control and Strategic Planning of Zenith Bank Plc. and had been Management team since inception. Mr. Emefiele has over eighteen years of banking experience. Mr. Emefiele serves as Director at Zenith Bank Plc and Zenith Bank (Gambia) Limited. Before commencing his banking career, he has lectured Finance and Insurance at the University of Nigeria Nsukka, and University of Port Harcourt, respectively. Mr. Emefiele serves as Director of ACCION Microfinance Bank Limited. He is also an alumnus of Executive Education at Stanford University, Harvard University (2004) and Wharton Graduate Schools of Business (2005). Mr. Emefiele holds a B.Sc Degree in 1984 and an MBA Degree in Finance in 1986, both from the University of Nigeria, Nsukka. Source:BusinessWeek



Dr. Kingsley  Chiedu Moghalu, Deputy Governor of the Central Bank of Nigeria (CBN), has distance himself from Sanusi Lamido, the suspended CBN governor.  Dr. Moghalu is the  head of the Bank's Financial System Stability directorate at CBN. He is  responsible  for the regulation of banks and financial institutions, which entails the management of systemic risk, and the development of finance programs .


Dr. Moghalu  in a exclusive interview with the British independent News said that the suspended central banker overstepped the mark. Moghalu is intellectually superior and have written many books on Nigerian economy and development . He is a renowned scholar and monetary policy expert  that got his PHD from London School of Economic.


Dr. Moghalu


Below is the complete interview conducted by  Independent UK:


Mr Sanusi had overstepped his authority.

Discussing the Sanusi affair in the sidelines of the Africa CEO Forum in Geneva, he told the Independent: "The lesson that can be drawn from it is the limits of central bank independence... There is a very thin line between central bank independence and... political posturing."

In support of President Jonathan's government, he said: "The president of Nigeria and the government of Nigeria have never in my knowledge interfered with the function of the central bank. And therefore I think we need to give them credit for respecting [its] independence."

He added: "The governor began to make very damaging public allegations against the government... allegations that have not been proven, after the president had sent him a presidential query about the finances of the central bank. The government has given a reason for the suspension and that was... to enable an investigation into the allegations against him."

Bizarrely preferring not to mention Mr Sanusi by name, he went on to say: "Somebody in the central bank was taking on an activist political role. That is not our function. Central banks over the world have clear functions and in your country [Britain] and any other civilised country I know that central bank governors operate within certain expectations and constraints and respect those expectations and constraints."

He added that the central bank had managed to contain the market fallout from the president's actions, pointing out that he and his fellow deputy governors were in agreement with Dr Sanusi's internationally well regarded position as an inflation hawk in favour of high interest rates to keep a lid on prices.


Finally, "Life is back to normal,"  as Dr. Moghalu reassured in the  exclusive interview.   This interview shows that the policy makers are not in uniformity on how to engage the executive branch of the government. Moghalu has been the conscience of the CBN and his intellectual honesty has been held in high value and esteem especially among international portfolio and money managers around the world. 




Wednesday, 25 September 2013 13:48

Sanusi, CBN and end of Tenure

Sanusi Lamido Sanusi, Executive Governor of Central Bank of Nigeria (CBN) in next ten months will vacate his position as the chieftain of the country’s apex bank. He showed no interest in asking for the renewal of his job when the first term elapses in 2014.


Sanusi without a doubt has contributed to the macro-economic stability of Nigeria. But he was without controversy, some of his undertakings were not popular but he found strength, if not solace in the application of sound monetary policy.  With the monetary tool at his disposal he has managed to maintain a fairly stable monetary policy. By lowering inflation, Sanusi has striven and was able to maintain some-what decent price stability.  A reasonable price stability will be taken for what is it within the context of Nigeria’s reality.  By putting into consideration that Nigeria economy is an importation orientated economy with oil as a major source of foreign exchange must be acknowledged.


When Sanusi came in there was financial instability and liquidity crunch, which was  triggered by poor management especially on the failing banks that were over laden with toxic debts. He was able to reform the failed banks and re-capitalized them.  Sanusi performed a delicate task of infusing capital into the banking sector without overheating the economy.


Although he was successful with the fixing of the banks but the inflation rate was not immediately suppressed. He promised to tame the inflation, which became difficult, if not elusive to accomplish but he eventually brought down inflation rate at less than ten percent as he earlier promised.

The tightened of the monetary tools may have brought down the inflation rate, but downside was the high interest rate that stood over 12 percent, which is not something to write home about. High interest rate may be attractive to investors in the capital market but it is not conducive for sustainable economic growth. High interest rate do discourages borrowing and that may dampen economic growth.


In reality with regards to an import and oil economy, the power of monetary policy may be limited and even waned.  The best possible paradigm is to get the monetary and fiscal policies to be complementary.  This is where the intervention of the executive and legislative branches becomes imperative. The complementary objective is to fashion out a pro-growth tax policy and to build electric infrastructure to incentivize economic growth and achieve an endurable macro-economic stability.


The answer to the economic problems may be found in the fiscal policy. The executive and law makers must work together to implement policies that could stimulate the economy and incentivize investors to infuse capital in the economy. The tax policy that is favorable for investment and repatriation of capitals are necessary to make the economy grow faster and bountifully. Lower taxes and meaningful regulations are good to catalyze the weak economic growth. .



Moderation in taxes and logical regulations with regards to fiscal policy may open the door to a steady and faster economic growth. The provision of durable infrastructures especially electricity and security hold the key to a growing and sustainable economy.


Sanusi’s tenure was not all rosy; some of his signature achievements including the introduction of Islamic banking  was controversial.  The opponents of Islamic banking argued that Nigerian constitution is secular and that the introduction of Islamic banking may reinforce sectarian politics. But he never bogged down nor back down, he stood up and judiciously defended the premise of Islamic banking in Nigeria.


Sanusi was quick to donate money to many organizations and institutions  does not sit well with many law makers who accused him for overreaching and usurpation of the legislative power of the  purse,  the power to appropriate funds.  Many legislatures insisted that constitution that guarantees CBN governor of independence must be taken away. But eventually cool heads prevail and the constitution was not altered and CBN continues to enjoy its independence.


Sanusi neaerly  made the greatest blunder of his professional life asa banker by his decision to print N5,000 naira bank note but he was averted by ordinary Nigerians who seems to know more about the subsequent effect of such an action more than the white collar professionals who sit in Abuja air-conditioned offices.

Emeka Chiakwelu, Afripol Principal Policy Strategist and Analyst commented," By printing a large denomination of naira notes, the value of the naira will nosedive while inflation will gain momentum and that can be disastrous to the economy. Sometimes, our policy makers especially those of them that are making important financial decisions act like those that do not grasp  the fundamentals  of monetary and macro economic theories.  One cannot quench a burning fire by throwing kerosene into it.  How can you tame inflation by application of tools that will make it worse than before?  I am totally disappointed with Central Bank of Nigeria."

Chiakwelu further stressed, "Does Nigeria desire to make naira become worthless akin to Zimbabwe currency that is miserably worthless?  Is Nigeria policymakers ever ‘chill out’ and think critically on how their decisions may destroy the house they are trying to build. These impulsive financial and monetary decisions were what wrecked the economy of Zimbabwe. Nigeria is tilting to the path of Zimbabwe economic gulag where hyperinflation and incoherent economic decision will doom the nation’s economy."


Sanusi support for the removal of fuel subsidy was not universally acceptable to most Nigerians especially the large chunk of the country's poor that are surviving with less than two dollars per day. The danger they perceived in the removal of fuel subsidies were buttressed when the removal was partially implemented. The prices of household products were hiked up, transportation fares and kerosene prices were beyond the reach of the average Nigerians. Even inflation rate was briefly higher than anticipated and all these slowed down, if not muted  the full implementation of fuel subsidies removal.


In totality, Sanusi will leave behind a stable monetary policy but the work of macro-economic stability is beyond the limited function of the governor of Central Bank. When fiscal  and monetary policy becomes complimentary a more stable , successful and sustainable economy becomes imminent and  viable .


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

President Jonathan will be gearing up for the replacement of Sanusi Lamido Sanusi, Executive Governor of Central Bank of Nigeria (CBN) in next ten months, when Sanusi term in the office ends in 2014. From all indication it appears that Sanusi is not seeking for another term. The process for his replacement is slowly and gradually intensifying as many candidates are emerging but at the moment no vetting or serious consideration has been given to any candidate. The position is wide open and any qualify candidate can grab the prestigious but demanding position.


The next CBN governor must be an excellent student of pragmatic economics. This is not to say that theoretical economics must be wholly rejected but a dose of reality is needed within the context of the country’s economy. An economy that is not sufficiently industrial but rather powered by natural resources.


Head of the country’s reserve bank must be proficient and skillful in the understanding of macro-economics, especially on employment and price stability.  An expert of money currency and capital markets becomes necessary to avoid unnecessary devaluation of naira by maintaining a stable currency and integrity of naira as a stabilized currency.


The next CBN governor must be an inflation hawk that can effectively apply monetary policy to keep inflation rate below 10 percent. An inflation rate below 5 percent may be the best for bountiful and sustainable economic growth. The high interest rate at above 12 percent will eventually dampen economic growth; the new boss at CBN must work feverishly  around the clock to lower the interest rate.  A high interest rate becomes a barrier to borrowing by business community and this may contribute to lower economic productivity.


The below mentioned technocrats are those who can successfully do the job, if President Jonathan decides to appoint any one of them to replace the out-going Sanusi.


Dr. Kingsley Moghalu:  Deputy Governor of the Central Bank of Nigeria (CBN), and head of the Bank's Financial System Stability directorate. He is responsible for the regulation of banks and financial institutions, which entails the management of systemic risk, and the development of finance programs.. Moghalu is already familiar with the inner works of CBN and does not need any orientation. He is very impressive with public relation which is significant for modern running of Federal Reserve Bank. During presentation of his latest book, Emerging Africa: How the Global Economy's 'Last Frontier' Can Prosper and Matter at Woodrow Wilson Center in Washington, he was intellectually superb.


Bisi Onasanya: Managing Director/Chief Executive Officer of First Bank. Economist  magazine described him  as “A seasoned banker and chartered accountant with over 29 years diverse management and operational experience, Bisi is a highly respected and personable executive who has established a reputation at FirstBank for solid performance and sound judgment. Until his appointment as Group Managing Director and CEO, he was Executive Director, Banking Operations & Services. Prior to this, he was Managing Director and CEO of First Pension Custodian Nigeria Limited, a wholly-owned subsidiary of FirstBank. He is a Fellow of the Institute of Chartered Accountants of Nigeria and the Chartered Institute of Bankers of Nigeria. He is also an Associate Member of the Nigerian Institute of Taxation.”



Dr. Sarah Alade: Deputy Governor of the Central Bank of Nigeria responsible for Economic Policy.   Alade was former Director, Banking Operations Department. She also served as Chairman Board of Directors, Nigeria Interbank Settlement System (NIBSS) as well as Secretary, National Payments System Committee (NPSC). If appointed the next governor of CBN, she will be the first woman to head Nigeria’s apex bank.



Dr. Shamsuddeen Usman: Nigeria’s Minister of National Planning, is the chairman of the Steering Committee on Nigeria Vision 202. He was former minister of finance and one time deputy governor of Central Bank of Nigeria. Usman is brilliant, superbly educated with an effective background and experience to competently manage the affairs of CBN



Mrs Obiageli Ezekwesili is a Nigerian trained chartered accountant. Wikipedia stated , “She was a co-founder of Transparency International, serving as one of the pioneer Directors of the global anti-corruption body based in Berlin, Germany. She served as Federal Minister of Solid Minerals and then as Federal Minister of Education Since then, she has been the Vice President of the World Bank's Africa division.”  Ezekwesili obtained her advance degree from Harvard University and later worked with public economist Jeffrey Sachs at Center for International Development, Harvard University. Lately, she has become a crusader for public accountability and probity. She represent the quality of woman needed to man CBN with academic brilliance, hard work and rich experience She will also be the first woman to occupy the position of governor of CBN, if chosen by President Jonathan.


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

Are Statistical data and indices coming from the National Bureau of Statistics (NBS) delineating the reality and  correlation between the economy and country's well-being?

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 to 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 not 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.

imageFaces of poverty in Nigeria

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


Published in Archive
Saturday, 07 January 2012 20:25

CBN and fuel subsidy

The removal of petrol subsidy is one area that has exposed our government’s characteristic indecision and prevarication.

Government’s claim to subsidy value of over N600bn per annum is considered outrageous and unsustainable as these expenses subhead alone usually exceed the consolidated capital votes for health, education and transport each year. Meanwhile, Nigerians continue to bemoan the huge infrastructural deficits in these critical areas of social welfare, but still rigidly insist on the maintenance of this oppressive expenditure pattern. Indeed, the Peoples Democratic Party led-government has continued to threaten Nigerians with petroleum subsidy withdrawal for over six years, with renewed calls and affirmation by government officials every month or so. The bombshell was finally thrown on New Year Day when the government announced the removal of the subsidy on petrol.

Nonetheless, subsidy has increased from just over N100bn in year 2000 to its current value of over N600bn, while government continues to make feeble noise on the end of subsidy. The truth, of course, is well recognised by government that removal of subsidy will bring untold hardship to all Nigerians (especially those who do not have easy access to government treasury). But there is the possibility that subsidy could exceed over 70 per cent of our capital budget, if oil prices rise fortuitously to above $100/barrel in the next 12 months. If this happens, any hope that we will make any serious impact on our infrastructural deficit may well be a pipe dream together with the porous Vision 2020 strategy.

I have maintained without equivocation in the last six years that it will be impossible for government to cancel subsidy (i.e. dismantle the Nigerian National Petroleum Corporation’s current petrol import monopoly) without first dismantling the monopoly of our Central Bank in the foreign exchange market, where the CBN controls over 80 per cent of all dollars traded in the market while it maintains its constitutional monopoly of all naira issuance concurrently. Needless to say that government’s dilemma on fuel pricing firmly corroborates our observation.

However, we have noted how the adoption of the instruments of dollar certificates (strictly not cash) for disbursement of dollar derived revenue to constitutional beneficiaries would immediately lead to steady decline in local fuel prices such that ‘subsidy’ will become unnecessary while government will be repositioned to actually derive substantial revenue from a sales tax which can be levied without any opposition from labour.

In other words, the adoption of dollar certificates will make available over N600bn for capital and social welfare enhancement in addition to a sales tax revenue of up to N10/litre on the estimated 30 million litres of fuel consumed daily. If the situation can be turned around so simply and beneficently, why is the government pussyfooting on this vital issue? The only obvious reason for government’s lack of enthusiasm to embrace this reality is that its adoption would quickly reduce the space for corruption and self-enrichment, particularly in the CBN, the commercial banks, the executive arms of government and in the bureau de change, who now serve as a collaborative conduit with treasury looters to facilitate money laundering.

A national newspaper’s editorial on June 17, 2010, entitled, “CBN and Petroleum Subsidy”, aptly captures the issues. It is axiomatic that the same CBN which is primarily the promoter and the villain in the scourge of subsidy is also shouting the loudest for its removal. Some analysts observe that it is a case of propaganda and an attempt to distract attention and divert recognition of the apex bank as the engine of our problem. The editorial under reference noted among others that:

“The problem of petroleum subsidy has lingered for several decades and it is therefore regrettable that the CBN failed to look inward for alternative options for resolving the matter, a sine qua non – confirmed by the following cursory historical review. Petroleum products have not always been subsidised nor did the outset of subsidy result from lagging petroleum product prices relative to changes in the international price of crude oil. From its stable price of 8.8 kobo per litre in 1966-78 when there was no subsidy, petrol price rocketed by 73,700 per cent to N65 per litre today.

“Also diesel which retailed at 11 kobo per litre in 1985 zoomed to 99,900 per cent or N110 per litre currently. But crude oil, even at the peak price of US$147 per barrel in 2008, rose by only 880 per cent over the 1978 level of $15 per barrel. Hence nominally, with domestic petrol and diesel prices outpacing crude oil prices by 84 fold and 114-fold respectively during the period, the culprit in the vexed subsidy is the precipitous depreciation of the naira by over 99.6 per cent since 1980 with its attendant high inflation. Doubtless, the monetary and fiscal authorities culpably left their job undone.

“Accordingly, until the CBN begins to correctly infuse federation account dollar proceeds into the system so as to halt the slide of the naira and stem high inflation, removal or reduction in petrol subsidy would leave the masses worse off. On the contrary, when government flushes out (as it should) the oil sector cabal currently cornering substantial part of the subsidy, the lot of the masses would improve. Poised against the masses, Sanusi further sought to justify his position by claiming falsely that government was borrowing to pay petrol subsidy debts. The truth is that proceeds (local or external) from any volume of crude oil allocated for domestic consumption more than cover whatever shortfall that might arise because of the controlled pump price of petrol.

“For now, as the CBN searches for excuses for its unending failures, Nigerians should be spared the distraction and economic pain that the removal of the remaining petroleum subsidy could cause.”

However, how do Nigerians see government’s argument and propaganda for rationalising subsidy removal? To answer this question, we will conclude this week’s piece with excerpts from a rejoinder entitled, “The Arithmetic of Subsidy, the ‘Isiro’ of Deceit” (isiro in Yoruba translates to calculation) by Oyewale Tomori, a Professor of Virology on page 64 edition of the same newspaper on June 24, 2010. It reads as follows:

“The campaign, or rather the war to remove subsidy has been going on now for some time; the losers will be the ordinary abandoned, deserted, discarded, forsaken, neglected and done for citizens of Nigeria… They have employed tactics bordering on deceit, trickery, duplicity, deception and guile. It is either somebody is trying to fool us, or the secret of how much we really need to develop this country has been inadvertently released to us.”

•Boyo, an economist and entrepreneur, wrote in from Abel Sell Limited, Lagos via This e-mail address is being protected from spambots. You need JavaScript enabled to view it .


Saturday, 26 November 2011 18:16

Sanusi's CBN and Naira devaluation

Sanusi's CBN and Naira devaluation: Public Good, Double Talk and Contradictory Policy.  Naira has been devalued up to N160 to $1

It is beginning to look that Sanusi Lamido Sanusi, the executive governor of Central Bank of Nigeria (CBN) is stepping into a pathway of perplexing contradictions. At the time that International Monetary Fund (IMF) recommended for Nigeria to devalue naira, Sanusi was insisting that there is no need for the devaluation. He did everything he can to make it absolutely certain to every one listening that there is no logical financial reason to devalue the already malleable and soft naira. Most Nigerians were singing his praises that Nigeria has gotten a financial leader that cannot be intimidate by overbearing IMF, a leader that is not willing to be genuflecting to the international financial institutions. But apparently not, the CBN chieftain is doing Texas-Two Step backward dance.

What's up?

Sanusi has begun to sing a new tune; it is no more the IMF asking him to drink the bitter liquid of devaluation. The CBN titan has chose to do it for the public good as it appears to keep the economy floating as the bulwark to the anticipated nosedive of oil price, with subconsequent lower foreign reserve. The reason that is more plausible is to appease the international financial powers who are probably breathing per irately down his neck. The naira has been devalued up to N160 to $1 but the devaluation will not stop there. Go and mark this, it is a slippery slope and the devaluation will continue. But interestingly, Nigeria does not have the requisite dollar reserve to satiate the demand that comes with the devaluation.

Finacial Times of London wrote: “Nigeria devalued the naira on Monday as falling reserves, caused by weak oil revenues, forced its hand. The central bank announced the naira would be pegged to the dollar within a target range of N150 to N160, up from a bracket of N145 to N155 per dollar. The bank wants to converge the official forex rates with the interbank rate and narrow arbitrage trading opportunities – the chance for investors to profit from the two different rates"

David Kahone of Financial Times further reported that, "The main reason for Nigeria’s decision to devalue, according to Renaissance Capital, the Russian investment bank, is a fall in its reserves brought about by lower than expected oil production in 2011 and a low projected oil price in 2012. Africa’s biggest oil producer derives some 75 per cent of its revenues from oil and is revising down its benchmark oil price in the 2012 budget to $70 per barrel from $75 per barrel – not an insignificant shift"

The apparent devaluation will not bring about any affirmative result that compelled CBN in first place to devalue naira. Nigeria had passed through this path before and it did not make a difference nor did it change the economic paradigm of the nation in good trends. The problem with Nigerian economy is beyond the application of monetary policy and in this case the devaluation of naira. Nigeria has major structural problem that cannot be rectify by artificial depreciation of the naira. The problem with country's economy is over reliance on oil and by thinking that the party will last forever. The idea of diversification is a lip service given by policy makers as the country is busy chasing a shadow that is merely a mirage. A nation cannot become economically independent by exporting one commodity with a weak currency which will eventually attract IMF's neo-liberal policies. As the country implement neo-liberal policies, it will not stop with devaluation of naira, the shrinking of spending on social program will follow put including the removal of fuel subsidy and banning of importation of many essential commodities. The government will balance the budget on the back of the poor people of Nigeria and suffering will geometrically increase.

The major contradiction coming form naira's devaluation is threat it posed to stabilizing inflation and the further erosion of domestic value of naira. Devaluation is another method of creating more money in the circulation especially with the weaken naira. With devaluation and subsequent enormous soft naira in circulation the prices of food, goods and services will go up; that will make the ugly hand of inflation to rigidly standout and making it more difficult to rein in inflation. Then CBN will restore to further mopping of the liquidity by tightening monetary tool, thereby jacking up interest rate which will conversely slow down the economic growth. No matter from which perspective or angle one looks at the naira devaluation its benefit is quite limited and there is no optimum quantifiable outcome. One thing it can do is to discourage importation, but Nigerians are already addicted to foreign products and travelling abroad; surely Nigerians will find a way to circumvent it and continue with their addictions.

The price of oil and foreign reserve have the propensity to be gyrating cyclically and using naira's devaluation to stabiles the economy is not logical at long term. It should be a tactical response to a momentarily problem but it is not strategically plausible to become the panacea.  Nigerian economy is standing on a dislocated table that can be easily be pull down by forces of the market. The economy is growing at above 7 percent but without infrastructure and security the growth may not be sustainable.

CBN's chief Lamido Sanusi may do the public good and world economy good by devaluation that will make oil cheaper. It can be accepted for a short time but Nigeria may not necessarily be the beneficiary because Nigeria does not have arrays of commodities and finished products to export. This boils down on the lopsided economy and portrays how weak the manufacturing and agricultural sectors are in the country. The source of country's earning of foreign exchange must be expanded beyond oil export by diversification of the economy. This must be made perfectly clear to the policymakers that Nigeria cannot devalue her currency to a successful economy.

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


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



Central Bank of Nigeria raises benchmark interest rate to 9.25 percent, up from 8.75 percent

ABUJA (Reuters) - Nigeria's central bank monetary policy committee on Monday raised its benchmark interest rate for the fifth time this year in anticipation of upward inflationary pressures and to support the weakened local currency. The MPC lifted its benchmark rate to 9.25 percent, up from 8.75 percent, a move at the top end of analysts' expectations. Central Bank Governor, Lamido Sanusi, said although inflation had declined in the last two-months, high government spending, a new minimum wage, the likely removal of fuel subsidies and a flood of expected liquidity from the state "bad bank" were all likely to push prices higher.

"Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future," Sanusi told reporters, reading from the MPC communique in Abuja."The fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy."

The committee voted 8-3 to raise rates and they all agreed to maintain a 200 basis point corridor around the MPR, meaning its recommended deposit rate is 7.25 percent and lending rate 11.25 percent. Sanusi said the decision to lift the benchmark rate was also influenced by the need to support the naira, which weakened to its lowest level against the U.S. dollar for four months on Monday.

The central bank has tried to prop up the local currency by selling dollars at a bi-weekly auction and through monetary tightening but without sustained success."It looks as though there is a clear intent to bring real interest rates to positive levels, in order to shore up support for the naira," said Razia Khan, Head of Africa Research at Standard Chartered.


"With GDP growth between 7-8 percent, and a questionable transmission mechanism of monetary tightening to the real economy in any case, this is something the CBN can afford to do."

Analysts had been divided on the likely outcome prior to the meeting. Seven of the 13 analysts polled by Reuters expected rates to rise by 25-50 basis points, with the rest predicting rates would be unchanged. Nigeria's inflation remained steady within the central bank's notional single-digit target in August, data showed this week. Headline inflation was 9.3 percent year-on-year in August from 9.4 percent in July, while growth in food prices, the largest contributor to the consumer inflation figure, rose to 8.7 percent in August from 7.9 percent in July.

But core inflation, which excludes some volatile components such as food and energy, remained in double digits in August and the central bank remains concerned about continued high government spending, especially recurrent expenditure. Nigeria's new finance minister, Ngozi Okonjo-Iweala, pledged to cut back government spending when she arrived last month but early benchmarks set out for the 2012 budget last week showed few signs of a promised fiscal prudence.

Okonjo-Iweala's cautious plans did not convince Sanusi.

"The government has announced a target of a 1 percent annual reduction in government recurrent spending and when viewed in the context of the anticipated injections associated with the new national minimum wage this reflects that the fiscal retrenchment is likely to be drawn out," he said.

Sanusi said stalling global economic growth was likely to impact Nigeria through a drop in trade and investment, while the recent poor performance of the Nigerian stock market was a reflection of declining risk appetite internationally


Page 1 of 3