Sanusi’s Long Goodbye Adds to Risks in Nigeria Vote Runup

Nigerian central bank Governor Lamido Sanusi is preparing to leave his post in June, raising concern among investors that his success in curbing inflation and stabilizing the currency may unravel in a pre-election year.

In his four years in office, Sanusi, 52, overhauled a banking industry that was near collapse, cut the inflation rate to the lowest level in more than five years and helped to keep the currency within a narrow range. Those achievements may be threatened as government spending is set to escalate before elections in 2015.

“Sanusi has been ready to tighten monetary policy when needed,” Samir Gadio, a strategist at Standard Bank Group Ltd. in London, said in an interview. “We are going into an election in less than 16 months, so what we expect is that for the next year, fiscal policy will be significantly expansionary, and if not checked by the central bank, it could result in increased pressure on the exchange rate.”

The government of Africa’s biggest crude producer is already drawing down savings to meet its spending needs as oil production misses targets. While President Goodluck Jonathan has pledged to keep the budget deficit under control, Sanusi himself is wary, saying in an interview last month that the central bank is bracing for fiscal “shocks.” Government expenditure climbed 17 percent before the 2011 presidential vote.

Currency Risk

The key concern among investors is exchange rate stability, including a possible devaluation. The central bank has supported the naira by selling foreign currency at twice-weekly auctions to keep the local unit within a range of 3 percent around 155 per dollar.

The naira has dropped 1.2 percent against the dollar this year on the interbank market and was trading at 157.98 as of 2:10 p.m. in Lagos, the commercial capital. Yields on Nigeria’s naira debt maturing in January 2022 have risen 73 basis points, or 0.73 percentage points, to 12.74 percent.

Jonathan, 56, hasn’t given any indication yet of who will be the next governor. Lagos-based Vetiva Capital Management Ltd. said in an Oct. 28 report that potential candidates include Sanusi’s four deputies -- Sarah Alade, Suleiman Barau, Tunde Lemo and Kingsley Moghalu -- and Aigboje Aig-Imoukhuede, chief executive officer of Access Bank Plc, Nigeria’s fifth-biggest lender by market value.

Fighting Criticism

“In terms of international credibility, there’s not someone who is his equal who could take over,” Ronak Gadhia, a research analyst at London-based Exotix Ltd., which invests in frontier emerging markets, said in an interview. “It’s everything Sanusi has achieved. He helped sort out the banking crisis, and the currency is as stable as it’s ever been. It’s been really prudent economic management.”

Appointed in 2009 during a debt crisis, Sanusi oversaw a 620 billion-naira ($3.9 billion) bank bailout and fired the chief executives of eight of the country’s 24 banks after an audit found evidence of mismanagement and reckless lending. Inflation has slowed to 7.8 percent in October from 13.2 percent in May 2009, the month before Sanusi took office.

Investors are worried that Jonathan may appoint a governor who is less inclined to challenge overspending by lawmakers and kowtow to pressure from the Finance Ministry to lower interest rates. Sanusi, who drew criticism from members of parliament opposed to his push for spending curbs on salaries, fought off plans by lawmakers last year to amend rules that would curtail the governor’s powers over the central bank.

Future Plans

“There is a risk the authorities might try to appoint a governor they can control,” Gadio said. “The concern is that the new governor and reshuffled monetary policy committee could actually shift away from a relatively tight monetary stance.”

Access Bank’s Aig-Imoukhuede, 47, said in an interview on Nov. 19 that it’s too early for interest-rate cuts even though inflation has slowed, indicating he would stick to the central bank’s price stability goals. He declined to comment on his chances of succeeding Sanusi.

Moghalu, who is deputy governor in charge of financial system stability, and Ugochukwu Okoroafor, a spokesman for the Abuja-based central bank, declined to comment on possible candidates to succeed Sanusi.

Sanusi, an economist by training and a former chief executive officer of First Bank of Nigeria Plc, has said he never intended to extend his contract. When he leaves, he plans to take a short break, perhaps study Mandarin, before ideally working at a think-tank focusing on economic policy-making in Africa, he said in an interview on Nov. 22 with Bloomberg TV’s African Business Weekly program.

Sanusi is “extraordinarily talented,” Jim O’Neill, the former chairman of Goldman Sachs Asset Management, said in an interview in Lagos. “I part think of him as the Alex Ferguson of central banking,” referring to the former Manchester United manager who is the most successful coach in British history. “He’s a tough act to follow,” said O’Neill.

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