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Foreign Exchange

Markets mourn demise of Nigerian central bank independence post-Sanusi

Nigerian central bank independence passed away this week, according to traders, after a long battle with government officials that culminated in the downfall of the celebrated reformer Lamido Sanusi.

Whether it was in his office in Abuja, rubbing shoulders with his central-banking counterparts at the Bank for International Settlements, or giving a voice to a pan-African development vision at Washington-based multilaterals, Lamido Sanusi was a radical in a conservative’s job.

Given his battle-ready disposition and sure-footed crisis-management skills, the former risk manager for First Bank of Nigeria was extraordinarily well placed to deal with the enormity of his challenge, upon assuming office as governor of the Central Bank of Nigeria (CBN) from 2007.

Amid a collapse of the banking industry, precipitated by a fall in oil prices and widespread asset misallocation, Sanusi embarked on a root-and-hardline reform of the banking industry. This included an extraordinary name-and-shame campaign to capture and convict bankers, accused of malfeasance, in a population largely desensitized to corruption.


Not content with cleaning up the sector, Sanusi engaged with skirmishes with fiscal authorities, over an array of issues, including the pay of politicians, structural reforms and even the government’s relations with China. To his detractors, he confused independence with anti-government activism and as a result politicized and weakened the CBN. His critics claim he lacked the temperament befitting of a central banker, prone to grandstanding and unnecessary provocation.

In just one interaction with this reporter, Sanusi once revealed a spat with Fed officials, the domestic oil industry and his predecessor. This candour and fiscal agitation ultimately sowed the seeds of his downfall.

On February 20, president Goodluck Jonathan suspended Sanusi, four months before the end of his tenure, citing “financial recklessness and misconduct”.

Sanusi’s claims – made in Monetary Policy Committee (MPC) statements in the past two years but advanced with strong rhetoric in December – that billions of missing oil revenue had undermined Nigerian growth, became a lightning rod for government criticism over its anti-graft policy ahead of the 2015 elections.

Sanusi’s grandstanding approach nurtured a narrative among foreign investors that the central bank’s 12-member MPC lacks independent judgement, reformist energy and the nous to engage with political skirmishes.

Underscoring the extraordinary faith invested in Sanusi, who had spent his tenure beefing up the credibility of the institution, market sources indicated the central bank had been forced to inject up to $150 million alone to battle a liquidity crisis in the interbank market in the 24 hours after his suspension. Sanusi dubbed the latter move illegal.

The timing of his downfall was as dramatic as his ascent, with a shift in the commodity cycle and the Fed’s tapering policy triggering portfolio outflows from the country.

Mourning the apparent death of the independence of the Nigerian central bank in its infancy, foreign investors sold Nigerian assets, testing its reserves war-chest in the absence of sizeable, and politically unpalatable, monetary tightening.

Fears grew the USD/NGN exchange-rate band – a key plank of Sanusi’s legacy post-banking system clean-up – could not be maintained in the absence of stronger oil production and fiscal savings.

Sanusi’s bid to transcend the constraints of his politicized office and agitate for reforms in an economy bereft of institutional capacity made his fall all but inevitable in the early years of his tenure, market players opined.

However, the timing, so close to his official departure date, at a time when the currency was being tested, ensured the government’s political, rather than economic, agenda took centre stage, said market players, confirming Sanusi’s long-standing charge.

Sanusi is survived by the now-acting governor, the former deputy governor for economic policy Sarah Alade, and Godwin Emefiele, the CEO of Zenith Bank who has been nominated to assume office on June 14.