High oil price, threat to Nigerian economy – Sanusi

•CBN to raise interest rate again
By Adeola Yusuf Senior Correspondent, Lagos (with agency report)

Brent crude for April delivery was up 86 cents to $115.65 per barrel (pb) at the weekend but the Central Bank of Nigeria (CBN) warned that the higher oil prices and government spending will worsen inflation.
Nigeria, Africa ’s top oil producer, relies on oil proceeds to service more than 90 per cent of its budget and CBN Governor Lamido Sanusi said high oil prices are making his job “more difficult.”
He signalled that he may raise interest rates for a second time this year.
Oil price above $100 pb is making the job of the CBN “more difficult” as Abuja increases subsidies on fuel imports, adding to inflation pressure, Sanusi said in an interview with Bloomberg Television.
The CBN has kept interest rates low since 2009, while pumping N620 billion ($4 billion) into commercial banks to avoid a collapse of the industry.
Now, government spending is rising ahead of the April elections, banks are signing recapitalisation accords, and inflation accelerated to 12.1 per cent in January from 11.8 per cent a month earlier.
“We have had to have easy money because we had a banking system on the brink of collapse. We bailed out the banks and everybody knows you don’t tighten money when your banks are suffering a liquidity crisis.”
The CBN raised benchmark interest rate by a quarter of a percentage point to 6.5 per cent on January 25 to help bring inflation down below 10 per cent.
Rising government spending and an increase in liquidity as the CBN recapitalises commercial banks are “reasons for tightening” monetary policy, Sanusi said, adding that further rate increases will depend on the March inflation data.
Nigeria depends on fuel imports for more than 90 per cent of its domestic needs because of a lack of refining capacity.
Sanusi estimated in June last year that the subsidy on domestic fuel prices will cost N520 billion naira in 2010.
“Because we import a lot of our energy, we don’t get the full benefit of the higher oil price because it translates into higher prices for the petroleum products that we import.
“The government is subsidising those products, which then means you get an increase in government deficits and government spending. So my job gets more difficult managing those things.”
Crude oil has surged 51 per cent in the past six months, reaching as high as $116.30 pb at the weekend.
The International Monetary Fund (IMF) said on February 17 that low interest rates helped to fuel inflation in Nigeria and the CBN may have to raise rates further to curb prices. Nigeria should also consider more flexibility in the exchange rate, rather than peg the Naira at about N150 to the Dollar, the IMF advised.
Sanusi said inflation is driven by “structural forces,” such as rising food prices, and the CBN cannot lift interest rates to curb that impact on inflation.
“We are more realistic about the limitations of monetary policy when inflation is driven by structural forces. We think we stand the risk of exaggerating the short-term impact of tightening. If you’ve got bad weather, there’s nothing you can do about it.”
Oil prices rose at the weekend as Libyan Government and rebel forces dug in amid fierce fighting while protests restarted in Tripoli, raising investor fears of a protracted oil output cuts.
Libyan leader Moammar Gadhafi’s regime stepped up its recruitment of mercenaries from other African countries, with an official in neighboring Mali saying that 200 to 300 men left for Libya in the last week.
On Friday, protesters renewed marches in Tripoli, calling for Gadhafi’s ouster. Last week, similar protests were met by a brutal crackdown.
United States President Barack Obama reiterated calls for Gadhafi, who has been in power for 41 years, to resign and leave the country.
Analysts said oil prices could stabilise if the political upheaval that has swept through North Africa and the Middle East does not spread to other crude-producing countries.
About one million barrels per day (bpd) of Libya’s 1.6 million capacities has been shut down because of the crisis.
“As long as it does not spread to the United Arab Emirates, Kuwait, Qatar or Saudi Arabia or worsen in Bahrain, Yemen or Iran, oil supplies from Saudi Arabia and Kuwait should be able to make up shortfalls in Libya ,” Cameron Hanover said in a report.

http://www.independentngonline.com/DailyIndependent/Article.aspx?id=29989

Bleh.

Improvise oga CBN u are good at detecting problems profering no solution,

^-- You'd think a country that is so heavily dependent on exporting oil would see a benefit from skyrocketing prices of their main product.

Alas. . .

Sanusi is a genius, and he's right.

Higher oil price is bad for Nigeria cause Nigeria still imports it's usable oil products.
therefore as American's and the British will suffer at the pump, so will Nigerians and all other businesses in Nigeria outside of Oil will suffer as well as the average everyday man that has to buy fuel of his car and generator.

^--- Does Nigeria consume 2.3 million barrels worth of crude oil a day? Probably the value of Nigeria's daily consumption is 5 or 10% of that.

Pretty much silly reasoning.

Subsidy should be removed and importation banned.Small scale refining should be encouraged as well.Each State can have up to 5 small scale refineries.

Such a measure will bring nothing but problems.

We do not have the refining capacity and must rely on imported petroleum products.

Even though the cost of crude will increase, the cost of products derived from the ceude oil will also increase.

Potentially the government will gain and the people or economy will loose.

The price of petrol, diesel, etc will all rise accordingly.

The governments only option is to use the increased revenue to subsidise domestic fuel prices. Without this we can expect rapid inflation which typically leads to civil unrest when people can no longer afford to eat.

Sun of god:

The governments only option is to use the increased revenue to subsidise fule prices. Without this we can expect rapid inflation which typically leads to civil unrest.

Subsidies will have to go one day.

There is no real reason for subsidies. Just because a country produces oil doesn't mean its citizens need to have it artificially subsidized.

Here where I live, oil is not only NOT subsidized, it is heavily taxed. In Europe, even more heavily taxed.

If the government would make sure that $275 million+ in oil it grosses per day were reasonably spent/accounted for, there would be:
A) No need for subsidies
B) High oil prices would clearly, undoubtedly benefit the country, since we don't CONSUME anywhere near $275 million in oil products per day.

Only in Nigeria can what should be a magnificent blessing be more ambiguous 

Looking at recent history a similar occurence happened during IBB's tenure and the first Iraq Invasion.

How did the windfall benefit Nigeria?

If the same governance occurs this time Nigerians will experience hardship like never before.

The inflation rate is already around 12% which is very high. How many people's income are increaing by 12% per year?

My fear is that the politicians will do as they have always done and divide the money amongst themselves without a care for the people.

At least by subsidising fuel prices, inflation can be brought down and every Nigerian will enjoy to a certain extent the increased revenues flowing into the country.

What Sanusi is saying in parables is: "Can you imagine crude oil prices are this high, but because of this backward PDP government, we'll suffer more instead!"