By Franklin Alli
The nation’s recovery from the recession occasioned by the global economic crisis has begun courtesy of the banking sector reforms and the improved oil productions engendered by the amnesty program. However due to infrastructural problem, the recovery will be at a very slow pace.

The recession of the nation’s economy in 2009 was occasioned by four factors: (i) Crash in oil price (ii) Crash of the stock market (iii) Lower Foreign exchange inflows resulting in exchange rate devaluation and (iv)Political/religion crisis/corruption in large doses
One reason why the economy will recover is the increase in oil production which was down owing to the crisis in the producing region by the militants. It is now up by 2.2barrels per day. Secondly, the CBN actions on the bailing out of banks and the common end year accounting will bring a better scenario to the financial markets in 2010.

Third is the improved performance of the non-oil sector which by  the third quarter  had improved GDP growth as announced by Nigeria Bureau of Statistics to 7.2 per cent
The following are predicted to happen in 2010 during the recovery process:

1. Excessive monetary expansion as a result of the regulators’ understanding of the liquidity situation in the system_the stimulus money.  The oil revenue will improve and there is the need to spend more on infrastructure (energy, Niger Delta etc) resulting in more money in circulation.

2. Consumer spending will rise but the biggest drag to this is the increasing level of unemployment rate which has risen to well over two digits in the fourth  quarter of 2009

3. Interest rate will be lower or maintain the level of 2009 provided the infrastructure problems are fixed especially  energy to reduce the cost of funds.

4. Price stability and inflation may become an issue in 2010. This is because regulatory authorities have allowed inflation to creep up simply because of the exchange rate devaluation which has had a crippling effect on price level changes. This creeping inflation could make the economic adjustment which is ultimately necessary a bit more painful.

5. Naira may strengthen a little with the effort of the CBN to guard the deregulated market. The CBN should remove the embargo on the Foreign exchange  interbank market to allow “price discovery” of the Naira exchange rate. In this wise, it is recommended that the CBN create a financial market group so that the Naira and Foreign exchange  trading can be complementary in a systematic manner. The challenge to this suggestion could be skill gap.

6. The risk in the recovery process is the monetary policy formulation in Nigeria not sticking to the basics i.e objective of price stability and the achievement of a low and stable rate of inflation, continuing the tradition of independence, open_ness and accountability which underpins the process of the Monetary Policy Committee, basing our decisions on an understanding of how the real economy of business and households is operating and ensuring that we have a forward-looking perspective focussed on the medium term). In an economy in which prices are continuing to rise rapidly, investment decisions and price signals more generally distortions, making it very difficult for business to plan for the longer_term.

By contrast, price stability enables the market economy to function efficiently and underpins economic prosperity more generally. Firms and individuals can plan ahead and make sound investment decisions, creating a much better climate for economic growth and job creation.