Rising inflation set to hurt Nigeria’s growth rate

Nigeria’s economy should grow at 6.4 per cent in 2010, boosted by rising oil prices, but inflation is likely to remain in double-digits, posing policy concerns in Africa’s top energy producer.

An average of a poll of nine analysts put Nigeria’s GDP growth marginally lower than the 6.9 per cent achieved last year, but higher than the 6.1 per cent projected in the government’s 2010 budget proposal.

“Recovered oil production and higher prices provide solid support for Nigeria and boosts growth,” said Antoon de Klerk of Investec Asset Management. He added that sustained peace in the Niger Delta, the heartland of Africa’s oil and gas industry, remained key to achieving the growth targets.

Nigeria’s oil exports have risen in the last few months due to a lull in militant attacks on the energy industry in the delta region. The attacks have kept output well below its more than two million barrels per day capacity.

But the West African country faces political uncertainty over the health of its president who has been in hospital in Saudi Arabia since November 23 receiving treatment for a heart condition without formally transferring power to his deputy.

Some analysts say President Umaru Yar’Adua’s tight grip on power has slowed government business.

Mounting pressure

Yar’Adua has come under mounting pressure to end a power vacuum that is increasingly worrying investors. Sub-Saharan Africa’s second-biggest economy, once a darling of frontier market investors, hopes its fortunes improve as the global economy gradually recovers, and after fixing problems in its banking sector rescued in 2009 by the regulator.

Central Bank Governor Lamido Sanusi has said stimulating economic growth and reviving lending in Africa’s most populous nation despite growing inflation risks is his key objective after a $4 billion bailout of nine poorly capitalised banks shook confidence and led banks to tighten lending.

Sanusi last week forecast a more than 7 per cent growth this year for the world’s eighth-biggest oil exporter. The average forecast in the Reuters poll for headline inflation was seen at 11.4 per cent in 2010 compared to 12 per cent in December and 11.2 per cent in the draft budget.

The central bank said at its Monetary Policy Meeting earlier in January that “serious inflation risk” lay ahead with government’s planned deregulation of fuel prices, increased budgetary spending and expected capital inflows to commercial banks but left its benchmark rate unchanged at 6 per cent.

-Reuters