Nigeria Central Bank Independence at Risk With Sanusi OustedChris Kay
The independence of Nigeria’s central bank may be the biggest casualty of President Goodluck Jonathan’s suspension of Governor Lamido Sanusi, who has worked to build policy credibility in Africa’s biggest oil producer.
The naira slumped to a record low yesterday, trading in the bond market was halted and the benchmark stock index fell to its weakest level in three months. Jonathan said he suspended Sanusi, 52, four months before his term ends because of what he said was “financial recklessness and misconduct.” Sanusi’s disclosure since December of billions of dollars of allegedly missing oil revenue has stoked criticism that Jonathan has failed to tackle corruption.
“The Central Bank of Nigeria was one of the more credible institutions, the one that’s made the biggest strides in building credibility in the past few years, particularly under Sanusi’s governorship,” Shilan Shah, an Africa economist at Capital Economics Ltd., said in a phone interview yesterday from London. “What this will lead to is concern that independence is being eroded, it reflects pretty badly and this has been shown up in markets.”
Appointed in 2009 in the midst of a debt crisis, Sanusi cleaned up a banking industry near collapse, kept interest rates at a record in the face of calls from businesses for lower borrowing costs, and brought inflation down below 10 percent.
The naira weakened yesterday as much as 3.2 percent to 168.90 per dollar, the lowest since Bloomberg began compiling data in 1999. The currency fell 0.7 percent as of 10:46 a.m. in Lagos, set for its worst week since September 2012. The benchmark equities gauge slid a second day, down 0.5 percent and yields on the nation’s Eurobonds due July 2023 were little changed at 6.32 percent after jumping the most on record by 12 basis points yesterday.
Jonathan’s decision to suspend Sanusi indicates that political calculations before elections next year may be trumping economic policy considerations even as foreigners pull money out of emerging markets, including Nigeria. A series of defections to the opposition has created the biggest challenge for Jonathan’s ruling People’s Democratic Party since it came to power after military rule in 1999.
“If the Jonathan administration is willing to discard a safe pair of hands at a time when the currency is being tested anyway, it shows more political motivation than economic awareness,” Alan Cameron, a Nigeria focused economist at FCMB Group Plc, said by phone yesterday from Johannesburg.
Jonathan named Sanusi’s deputy, Sarah Alade, as acting governor. A few hours after announcing the suspension, the Senate was informed in a letter from Jonathan that he nominated Zenith Bank Plc Chief Executive Officer Godwin Emefiele as governor.
Tension between Sanusi and Jonathan intensified late last year when he wrote to the president alleging the state-owned Nigerian National Petroleum Corp. had retained almost $50 billion in revenue that was due to the government. On Feb. 4, he told a Senate finance committee that $20 billion was outstanding. The NNPC has denied the allegations.
The suspension probably means “the investigation will be dead,” Sanusi said in a phone interview today from Lagos, the commercial capital. “My concern was that I’m managing an exchange rate and I can’t do it without the oil revenues coming in and if oil revenues were falling, I needed to get to the bottom of why they were falling.”
Jonathan’s office said in its statement yesterday that under Sanusi’s watch the central bank had been “distracted” from its mandate and expects Alade to “conduct its affairs with greater professionalism, prudence and propriety.”
Those allegations are “a joke” since Sanusi has demonstrated the central bank’s commitment to ensuring exchange rate and price stability, said Kevin Daly, a money manager who oversees about $10.5 billion in emerging market and Nigerian debt at Aberdeen Asset Management in London.
“This episode should remind investors that Nigeria country risk is high,” Daly said in an e-mailed reply to questions yesterday. “One should be wary when you have a weak leadership and a strong-willed central bank governor who is taking on the establishment.”
Finance Minister Ngozi Okonjo-Iweala and Alade moved to reassure investors yesterday that the bank will continue pursuing its goal of stabilizing inflation and the currency.
“I want to reassure investors that the strong stability that we brought into this economy will continue, and we’ll not deviate from that,” Okonjo-Iweala said in an interview in Abuja, the capital.
The suspension shouldn’t affect the ability of the central bank’s 12-member Monetary Policy Committee to make independent judgments and articulate those, Doyin Salami, an MPC member, said on a conference call today.
Sanusi hasn’t shied away from controversy. He has criticized lawmakers for spending on salaries, prompting some in the National Assembly to call for a curb on the central bank’s powers. He fired the chief executive officers of eight lenders within four months of taking office after an audit of banks at the time found evidence of mismanagement and reckless lending.
Nigerian security officials seized Sanusi’s passport as he landed at Lagos airport yesterday on his return from neighboring Niger, he said.
“I had my Schengen visa, my British visa, my U.S. visa, I could have gone anywhere if I wanted to, but I came in, I have no plans to leave,” Sanusi said. “It’s totally unnecessary and I’ve made the point on principle.”
While Sanusi said he will challenge his suspension in court to ensure the independence of the governor’s position, he has no plans to return to his post.
The suspension was “illegal and unconstitutional,” Femi Gbajabiamila, minority leader of Nigeria’s House of Representatives, said in Parliament yesterday.
“I don’t want to come back to the CBN,” Sanusi said in a phone interview yesterday. “But I do think in the interests of the institution, we need to know from the courts of law if the president has the authority to suspend the governor. If we don’t establish that then no governor of the central bank will be able to stand up to politicians because they can always be suspended on any kind of trumped up charges.”