As Sanusi Is Suspended, Is Nigeria Still The World's New Investment Darling?

As Nigeria has shifted from a corruption-addled frontier state to one of the world’s few emerging market bright spots, it has been assisted enormously by the charisma and gravitas of two of its financial leaders. One is the coordinating minister for the economy and minister of finance, Ngozi Okonjo-Iweala, familiar on the multilateral bank meeting circuit for her strong leadership, candidacy for the world Bank presidency – and her colourful headscarves. The other is central bank governor Sanusi Lamido Sanusi, sharp-suited and sharper-minded. It’s never been entirely clear how well the two people, or at least their institutions, get along, but they present to the world a credible, smart, articulate face for a country whose finances have often been murky.
But now Sanusi, who was due to step down in June, has been suspended by President Goodluck Ebele Jonathan over allegations of “financial recklessness and misconduct.” Few in the west take these words – taken verbatim from a statement issued by the president through his media adviser, Reuben Abati – at face value, and the result has been to erode confidence in one of the few market darlings of frontier-spirited fund managers in recent years.
It’s fair to say that Sanusi has, from the outset, taken on the big fights.
The first of them was taking on endemic financial fraud in the aftermath of a collapse in the country’s whole banking system in 2009. This was difficult – he sacked eight chief executives of Nigerian banks in his first four months – but considered a success story.
The last of them – the very last, it seems – was to take on corruption in the national oil industry. In February he released a stack of documents suggesting that Nigeria’s oil funds, the lifeblood of the national economy, were being mismanaged. Since oil revenues generally account for more than 70% of government revenue, any fraud within this sector is consumingly important for what is probably Africa’s largest economy (we’re all awaiting a restatement of national GDP which will very likely elevate it about South Africa). Falling oil income has caused problems with state finances and spending, foreign reserves, and Nigeria’s own currency, the naira, which has been falling sharply this year. There were hundreds of pages of data in the cache, but the key point is an allegation that more than $1 billion per month in crude sales, owed to the state, was not being remitted by the Nigerian National Petroleum Corporation.
It is rumoured that President Jonathan had asked Sanusi to resign earlier, but he has now moved to suspend the governor in the strongest possible terms. The statement says “Sanusi’s tenure has been characterized by various acts of financial recklessness and misconduct”, talks about “far-reaching irregularities under Mallam Sanusi’s watch”, and urges his successor, deputy governor Sarah Alade, to “focus on the core mandate of the bank and conduct its affairs with greater professionalism, prudence and propriety to restore domestic and international confidence in the country’s apex bank.”
Until recently, Nigeria had been much-loved among frontier investors, for several reasons. Firstly, the size of its GDP; secondly, its demographic position, with a young population chiefly within the workforce age bracket; thirdly, oil; and fourthly, a sense that it was cleaning up. High bond yields helped to drive heavy inflows into the currency last year. But even prior to Sanusi’s removal, the gloss had started to come off, as foreign exchange reserves had declined $7 billion from a $49 billion peak in April 2013, the naira had been falling, and next year’s election had begun to distort spending patterns and clarity in policy. News of Sanusi’s removal made things worse: bond trading was halted and the naira fell still further. Samir Gadio at Standard Bank said the move was “disruptive” and showed “the Central Bank of Nigeria has de facto lost much of its independence”, adding that “clearly it is driven by political motives given Sanusi’s vocal criticism of oil revenue leakages and the opaque fiscal system in Nigeria.” Strictly speaking, the President can’t remove the head of the central bank, which is perhaps why this is a suspension rather than an outright sacking; that would require a two-thirds vote in the Senate.
These are not good times for the MINTs, the newly-coined agglomeration of emerging economies below the BRICs. Indonesia and Turkey are suffering with their deficits and currencies; now Nigeria is in the mire again. Let’s hope Mexico can stay steady on its own reform agenda so that at least one of the four has a good year.
Correction: A previous version of this post incorrectly referred to Nigerian President Goodluck Ebele Jonathan as President Johnson. The post has been corrected.