In case you had not heard; the presidency yesterday suspended the governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi (SLS). He has been temporarily replaced with Dr. Sarah Alade who until now was deputy governor in charge of economic policy. Godwin Emefiele has been nominated as the new governor and will supposedly start his tenure in June subject to ratification by the national assembly of course.
Of course the first thing that comes to my mind is why? Specifically why now? The presidency have given a bunch of reason ranging from “various acts of financial recklessness and misconduct” to something about building hotels and a contract to El Rufai.
It is however not difficult to imagine that this suspension is in some way related to the allegations leveled against the NNPC. Recall the president asked SLS to resign a while ago after a leaked letter claimed $50bn was unaccounted for. The sum has since been reduced to $10bn or $20bn depending on who you ask. Something about a kerosene subsidy that was removed but not removed.
Irregardless of the reasons SLS has been suspended. So what are the implications?
In the short term the Naira will suffer. As at yesterday the Naira had spiked to 169 per dollar before foreign exchange trading was suspended. I think it will go even higher by next week. Most emerging market currencies have struggled recently and it is difficult to see how such a shock to investor confidence will not have an effect. Of course the CBN could come out and actively defend the Naira more than normal. However given that the external reserves have already dropped by over $2bn since the start of the year even that may prove to be problematic. Markets will calm eventually though so I wait to see where it settles.
In the long term the big damage to the credibility and independence of the Central Bank cannot be overlooked. As has been pointed out by many analysts, there is no reason to believe that the suspension will lead to a change in the actual monetary policy but it raises question about the influence of the presidency. If the presidency can unilaterally change things now then what stops them from changing things for the worse later. There are already questions being asked about the powers to remove the governor of the CBN. According to the CBN act, any change has to be ratified by two-thirds majority of the Senate and that hasn’t happened yet. There’s nothing about a suspension in the act though. And it doesn’t exactly lay out the procedures for removing the CBN governor. Do you suspend first and then consult the senate or the other way around? I hope the acting CBN governor supports challenging the suspension in court. I guess the silver lining to this whole brouhaha is that a court judgment striking down the suspension might further strengthen the CBN as an institution.
Finally the message to foreign investors is probably negative. Basically the message with this suspension is that as far as the 2015 elections are concerned, all gloves are off. The politicians are willing to go to any depths to win. Translation to a foreign investor; Maybe wait a bit.