The Effectiveness of Monetary Policies in Controlling Inflation in Nigerian Economy

Introduction

The Nigerian economy is aiming to have the sustainable growth path. Through the International Monetary Fund (IMF) the government can adopt the comprehensive Structural Adjustment Program (SAP). Nigeria has a structural and sectoral macroeconomic policy reform and the main strategies were (a) the liberalization of the external trade and payment systems, (b) the adoption of a market-based exchange rate for the domestic currency ─ Naira, (c) the elimination of price and interest rate controls, and (d) the reliance on market forces as the major determinants of economic activity (Owoye & Onafowora, 2007).The market reform in the financial sector such as the banking system can use the monetary control and instruments for implementing monetary policy in Nigeria.

Background and Problem Statement

In any countries across the globe, the fiscal and monetary policies seek at achieving relative macroeconomic stability. The monetary policy framework in Nigeria is more than the objective of monetary policy is price and exchange rate stability. The monetary strategy in the inflation management is based on the view that inflation is essentially a monetary phenomenon. The Nigerian economy targets the money supply and its growth can be the main objective of the price stability. In order to promote the appropriate methods in monetary policy, the supply growth is firstly considered in targeting the inflation. However, how effective are the monetary policies in Nigeria to control the inflation in their economy?

Research Aim and Objectives

The main aim of the study is describe the effectiveness of the monetary policy in Nigerian economy. In order to achieve this aim, there are three objectives that should be considered. First is to determine the superiority of policies in the achievement of the macroeconomic stability. Second is to compare the effectiveness of the fiscal policy with the monetary policy. And third is to investigate the ideal macroeconomic stability suitable for the country. Through the use of these objectives, the study can organize a predictions and good planning.

Literature Review

The Central Bank of Nigeria (CBN) mix the indirect instruments are used in the country to achieve the monetary objectives. The instruments included the reserves requirements, open market operation on Nigerian Treasury Bills (NTBs), liquid asset ratios and the discount window (Owoye & Onafowora, 2007). Generally, both fiscal and monetary policies seek at achieving relative macroeconomic stability. Based on countries’ experience on the role of monetary policy in controlling economics instability, there is an advantage that the same monetary policy can control the inflation rate and the instability in exchange rate. Various studies show that the application of the monetary policy can influence the financial aspect of the government through the determination of the inflation tax rate. This tax rate affects both the rate of inflation and the real exchange rate, thereby causing volatility in their rates (Folawewo & Osinubi, 2006). In Asia, wherein there are developing countries, there are policy options that can help the nations in dealing with the inflation. Obviously, the inflationary environment causes turbulent in the policymakers as seen in the action of to control the inflation in a depressed economic activity. Therefore, the authorities are forced to weigh the benefits and drawbacks that can stabilize the prices against the costs of slowing the growth. But with the help of the monetary policy, there are signs of growth generated in the economies, although the prices are affected. In this case, the central banks need to be more decisive in tightening the monetary conditions. Along with this activity, there are selective fiscal measures that can allow the currencies to rise faster to handle the pressures cause by the inflation. In return, there is an enhancement in the credibility of the monetary authorities which is adds to a greater challenge in the central banks (ADB, 2008). As an overall view, the effectiveness in monetary policy is an issue being faced by the economies and the central banking (Rasche & Williams, 2005).

Methodology

The suggested method in the study is the use of secondary information coming from the economic reviews of the country. It is a good start if the study can determine the recent reforms and successful monetary policies from the previous years to link the present situation of Nigeria with its literature on its fiscal and monetary policies. The materials or sources that can be use are the International Monetary Fund (IMF) Reports, Nigerian Treasury Bills (NTBs), Central Bank of Nigeria (CBN), and participating Nigerian banks to organize the ideas regarding the measurement of money against inflation.

References:

ADB, (2008) Asia Economic Monitor, Asian Development Bank [Online] Available at: http://aric.adb.org/pdf/aem/jul08/Jul_AEM_complete.pdf [Accessed 04 Aug 2010].

Folawewo, A.O., & Osinubi, T.S., (2006) Monetary Policy and Macroeconomic Instability in Nigeria: A Rational Expectation Approach, Journal of Social Science 12(2) [Online] Available at: http://www.krepublishers.com [Accessed 04 Aug 2010]

Owoye, O., & Onafowora, O., (2007) M2 Targeting, Money Demand, and Real GDP Growth in Nigeria: Do Rules Apply?, Journal of Business and Public Affairs 1(2) [Online] Available at: http://www.scientificjournals.org/journals2007/articles/1229.pdf [Accessed 04 Aug 2010].

Rasche, R.H., & Williams, M.M., (2005) The Effectiveness of Monetary Policy [Online] Available at: http://research.stlouisfed.org/wp/2005/2005-048.pdf [Accessed 04 Aug 2010].

Mode of Entry of Multinational Company into Foreign Market

Introduction

Strategies should be made in order to survive, most especially in the times of challenges and competitiveness available due the globalization. Uncertainties make the business environment even more complex. The challenges that are tangled in the influence of internationalization are continuously plaguing most of the organizations that are too much confident in creating profits. However, the expansion and market entry of the organizations can be more intriguing since the involved issue in the success of a market entry.

Advantages of MNEs

Multinational companies have various advantages because of their resources and abilities of people in performing within the workplace. In this case, there is a great possibility for the MNEs in the exploitation of their resources. Even the human capital will experience the changes in their workplace because of the raw materials, experience, and processes of information. The nature of the organization is also placed in critical level when it is placed under the pressure of foreign market and falls on the acquisition or Greenfield investment decisions (Ruiz and Mas, 2003). The expansion and target on the foreign market is increasingly popular among the business leaders across the globe which heightens the competition (Permiakova, 2008). It is advised that MNEs should properly choose the easy access and create s sound decision involving the three factors to be success in their entry in market: knowledge, location, and endeavor (Bhaumik and Gelb, 2003).

Modes of Entry

There are various approaches towards the entry of an organization particularly in foreign country. The international production and foreign direct investment (FDI) made such as great influence in boosting the business industries, and because of the benefits gained from the globalization, the corporate leaders are ready to set the sail on other destination. There is no such standard theory on the multinational enterprise when they already face the challenge of internationalization. But because of the complex nature that is engaged with the organizations, there are two popular options emerges in the decision for market entry and its either Greenfield investment or acquisitions (Görg, 1998; Ruiz and Mas, 2003).

In the analysis of the economists, the market entry of either small and medium enterprises (SME) or multinational enterprises (MNE) in foreign and are both challenging and must based on the internationalization theory (Zhao and Decker, 2004). There are many options available like the exporting, franchising, subcontracting, joint-ventures or FDI strategy. But entering in a foreign is a “no joke” opportunity where the business should expect the risks. Facilitating the foreign firms’ production and facilities abroad can definitely exploit the production, resources, or costs as compared with the home country (Görg, 1998).

Market Entry Strategies

MNEs assume that the foreign market will serve a good strategy to improve the business performance. The market entry strategy plans to leverage on the competitive assets such as brand names, managers, and suppliers of marketing services. A more experienced international company can advantageously find ways of adapting to local market conditions, including new locally-oriented brands, distribution channels, and new packaging and pricing. The business expansion strategy of the MNEs explains the relationship of the firms with the foreign government regulations and policies. However, the market entry and strategies still poses threats and challenges particularly in the operation of the organization. There are various reasons that lies in the action of the market. Commonly, the first objective of the MNEs in establishing the business in international markets is through increasing the commitment with the unsaturated markets. And to continue the entry, companies follow the strategies made by the other successful MNEs. Still, the choice of the modes of market entry should be assessed by the level of risk-control or the trade-off the company desires (Dhar, 2006).

Greenfield Investment vs. Acquisitions

Many companies choose this kind of action because of the specific advantages that it can deliver. It wishes to exploit abroad are identified to be difficult to separate from the company’s organization and are intrinsic to its workforce. Meaning, there is an assurance that the control is present. Meanwhile the acquisitions are defined to be the most critical way to enter in a market. It is almost impossible to develop the short-term goal and there is a great need to gain additional resource to cover the other losses and satisfy other needs. According to the expertise of the multinational leaders, the Greenfield investment is a great opportunity because of the fact that it can deliver the sough after international advantages through the routines and organizational practices the leaders can freely crafted (Ruiz and Mas, 2003).

References:

Bhaumik, S.K., & Gelb, S., (2003) “Determinants of MNC's Mode of Entry into an Emerging Market: Some Evidence from Egypt and South Africa”, Accessed 18 June 2010, from http://www.research4development.info/PDF/Outputs/CNEM/drc13.pdf

Dhar, S., (2006) “Case Studies on Market Entry Strategies – Vol. I”, The Institute of Chartered Financial Analysts of India, Accessed 18 June 2010, from http://www.ibscdc.org/businesscasebooks-pdfs/Market%20Entry%20Strategies%20Vol.%20I.pdf

Görg, H., (1998) “Analyzing Foreign Market Entry: The Choice between Greenfield Investment and Acquisitions”, Accessed 18 June 2010, from http://www.econstor.eu/bitstream/10419/1282/1/258189940.pdf

Permiakova, E., (2008) “Russian Market Entry Strategies of Multinational FMCG Companies (Taking Campbell Soup Company as an Example)”, Accessed 18 June 2010, from http://www.edamba.eu/userfiles/Permiakova.pdf

Ruiz, F., & Mas, F.J., (2003) “Spanish Company Foreign Market Entry”, Accessed 18 June 2010, from http://www.ivie.es/downloads/docs/03/wpec-10.pdf

Zhao, X., & Decker, R., (2004) “SMEs’ Choice of Foreign Market Entry Mode: A Normative Approach”, International Journal of Business and Economics, 3(3), Accessed 18 June 2010, from http://www.ijbe.org/table%20of%20content/pdf/vol3-3/vol3-3-01.pdf

World Economy

The late twentieth century has seen an unparalleled expansion of international capital. After years of competing blocs and capital restrictions, the floodgates have broken, and private investment has poured across political borders as never before. The commercial revolution was a period of rapid output growth, urbanization, population growth and technological innovation that affected the global economy. With the various contributory factors in the world economy such as globalization (Drainville & Sassen, 2003; International Labour Review, 2005), international trade agreements, economic cooperation, and technological advancements, it could be assumed that the world economy today is flourishing. But what is happening now is the other version of the story. With the emergence of different human conditions and overpopulation (Caldwell & Schindlmayr, 2002), political turmoil and instability, terrorism, and increase of oil prices, the world economy at present is slowing down but never ceases to recover its strength.

As a person who is an active participant of the society, aware of the background and current standings of the branches of the state, consumer of products, and contributor to the economy itself, I can say that indeed the global economy is deteriorating. However, notwithstanding the existing worldwide conditions affecting the world economy, I recognized the efforts of concerned world leaders and economists in improving its state. Therefore, we are at risk of economic crisis.

In a report released by the National Institute of Economic Review (2005), the global economy slowed down from 2004’s hectic GDP increase of 5.1 percent. Back in the year 2000, the global economic growth is characterized into two descriptions: “its staggering size and acceleration when compared with developments in previous centuries and its uneven distribution among different countries and regions of the world” (World Economic Outlook, 2000). After this economic milestone, the global economy demonstrated no signs and symptoms of development and progress due to some consequences of its immediate take off such as the war and the terror activities happening worldwide. The Committee for Worker’s International (CWI) (2003) reported that “the world economy is on the edge of a prolonged period of stagnation”. It also indicated that even before the incident of war in Iraq, the United Nations predicted "an escalation into military action would have even more profound negative economic consequences". As such consequence, the war speeds up the worsening of the global economy.

The three world’s leading economies – the US, Japan and Germany, are all either in or hovering on the threshold of recession (CWI, 2003). The United States of America in particular, the world’s largest economy, shows signs of slowing economy as the index of U.S. leading economic indicators fell due to oil price hike and slower job creation this year. Consumers are now deeply concerned about high energy bills and lagging employment according to a consumer survey (Torres, 2004).

Meanwhile, amidst these economical drawbacks, the global economy is still viable. The global efforts in reviving its once-upon-a-time strong and powerful stature are still workable. To show hope, the forecast of National Institute Economic Review illustrate signs of eventual survival. In a span of three years (2005-2007), the institute predicted a robust growth averaging nearly 4.5 percent annually. The following data from NIER are adapted to show the probable progression of the global economy.

* Global GDP will grow by 4.4 per cent a year in 2005 and 2006.

* Inflation in the OECD will rise from 1.7 per cent last year to 2.1 per cent in 2005, the highest since 2001.

* The United States will grow by 3 1/2 per cent a year in 2005 and 2006; inflation will rise to 3.2 per cent next year.

* Inflationary pressures will persist in the Euro Area despite weak growth of 1.3 per cent in 2005 and 1.9 per cent in 2006.

* Japan will grow by 2 1/2 per cent a year in 2005 and 2006, but prices will continue to fall.

With these promising data, the urgent solutions at hand are still imperative in its application. As a concerned citizen, the only thing that I can do to contribute to the possible solution that might help the world economy survive is my all out support in all the state’s effort of recovering it. This is the simplest yet most significant action that I may take. Basing to my own observation, I can suggest the following potential solutions.

* The continuous cooperation of international economic relations can uplift the weakening world economy. Policies must be created and implemented in favor to the progress of the economy. Policy coordination is also necessary. This occurs when countries agree to pursue economic policies intended to promote the welfare of all nations involved in the agreement (Holmlund, Bertil and Ann-Sofie Kolm, 2002).

* The strategic economic planning among leaders of states reinforces the programs of strengthening the economy.

* Heads of countries should start on their own territories. The government's role in providing the social, physical, and institutional infrastructure that allows competitive markets to function and in addressing market imperfections should be recognized.

* There should be constant attention given to the current trends and conditions occurring in all aspect of the global economy.

To sum it all, the world economy is definitely at stake. From its stable state up to its current condition, there is a need to recover it from its hectic situation. The global efforts of all leaders, economic advocates, as well as people are needed. Since the world economy is the foundation of every economic activity, its downfall creates a spillover effect among all economies. Thus, its own plague is the plague of all societies.

References

Caldwell, J.C. & Schindlmayr. T. (2002). Historical population estimates:

Unraveling the consensus. Population and Development Review, 28(2), 183-204.

Committee of Worker’s International (CWI) (2003). The World Economy: a

synchronized crisis. Retrieved February 22, 2006, from http://www.socialistworld.net/eng/2003/04/07economy.html

Drainville, A.C. & Sassen, S. (2003). Contesting Globalization: Space and Place

in the World Economy. New York: Routledge.

Holmlund, B. & Kolm, A. (2002). Economic Integration, Imperfect Competition,

and International Policy Coordination. Oxford Economic Papers, 54, 207-229.

Limits to Globalization: Welfare States and the World Economy (2005).

International Labour Review, 144(1), 122+.

The World Economy (2005). National Institute Economic Review, 194, 2.

The World Economy in the Twentieth Century: Striking Developments and Policy

Lessons (2000). World Economic Outlook. 149.

Torres, C. (2004). U.S. Shows signs of slowing economy. Bloomberg News. Media News Group, Inc.