Nigeria Content Online

Of late, Sanusi
Lamido Sanusi, the Governor of the Central Bank of Nigeria, has blown
hot and cold over the bank’s policy on the domestic exchange rate. He
has vacillated between an apparently strong commitment to defend the
“integrity” of the naira, and insouciance over the fortunes of the
embattled currency that in certain quarters could border on the
irresponsible. Still, you cannot but feel sorry for the man. He’s got a
duty to keep domestic monetary conditions on an even keel. No
businessperson wants to be wrong-footed or blind-sided by sudden
movements in the exchange rate, inflation figures, and/or the rates on
debts. They would rather, for their planning purposes, that trends in
these areas are largely predictable. Yet, if the central bank must have
a proper handle on all these, it should itself have reliable real-time
estimates on the different sections of the economy, and a working
understanding of the interactions that define the indices it looks at.

Unfortunately for
the central bank, ours is one of the noisiest economies around: there
are just too many extraneous variables, their emergence into the model
always unpredictable, and their conduct nearly always stochastic. Who,
for instance, could have predicted that waivers on the importation of
rice would be the one way that the campaigning for the next general
election kicks off? Unpredictable though this was, it has had clear and
present implications for foreign exchange demand in the country. To the
same extent, the bulimia with which this government has run down public
finances was just as unexpected. And to the extent that government’s
rapacity may have helped deplete the external reserves, it has burdened
the central bank’s ability to ratchet up supply at the weekly official
foreign exchange auctions.

So the CBN must
have felt a thrill run through it last week as oil prices in the global
marketplace ran past the US$80/barrel mark. With production figures
from the Niger Delta on the mend following the relative pacification of
the previously restive region, higher oil prices should boost the
external reserves, leaving the central bank with a lot more ammo in its
guns. Most commentators had feared recourse by the apex bank to
administrative measures to help ease supply constraints in the official
foreign exchange market, but higher oil prices might see the apex bank
better placed to meet demand at its new levels. More than this, it
would seem that oil prices might remain elevated for some time yet, in
spite of earlier apprehension over the consequences to commodity prices
of the last recession, and the slow global growth that we are
experiencing in its wake.

Although global oil
production was up in the first half of this year, led by a 14% increase
in demand in China, the IMF, reporting in its October edition of the
World Economic Outlook, argues that since “oil markets have not yet
reached a state of full cyclical normalisation”, “Oil demand will
continue to rise as the global recovery progresses, with the buoyancy
determined in part by the strength of the expansion in activity”.
Accordingly, the fund estimates that the “average price of oil will be
US$76.20 a barrel in 2010 and US$78.75 a barrel in 2011 and will remain
unchanged in real terms over the medium term”.

To a considerable degree, the central bank’s current dilemma
describes in small print, the problem with the macroeconomic policies
of the current administration. Déjà vu? Yes, we have been down this
route before. Under Professor Charles Soludo, as governor, the central
bank’s response was to supervise a huge devaluation of the naira, as
demand flourished. Additionally, though, the current administration has
spent all that it has earned, and more. Déjà vu? Yes again, for on the
back of healthy oil prices in the world market, it has superintended
over a staggering increase in government’s consumption as a share of
GDP (at the expense of the private sector). It has also grown public
debt without adding to the economy’s installed capacity, or increasing
productivity. In other words, over the last four years, neither
monetary nor fiscal policies have contributed anything new to how this
economy is managed. Truth be told, today because of the current
macroeconomic policy environment, we might be even more vulnerable to
oil price-based shocks to the economy, than we were at any time in the
history of this country.