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AfricaApril 1 2014

The tough act to follow at Nigeria's central bank

Investors in Nigeria were shocked when central bank governor Lamido Sanusi was suspended in February. His likely successor, Godwin Emefiele, is a very different character, but he will be keen to prove he is no less independent.
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The tough act to follow at Nigeria's central bank

Taking over from Lamido Sanusi as governor of Nigeria’s central bank was never going to be easy. But the manner in which Mr Sanusi was ousted could make his successor’s job that much tougher.

Analysts were shocked when Nigeria’s president Goodluck Jonathan suspended Mr Sanusi on February 20 for “recklessness and misconduct”, allegations that Mr Sanusi denies. Bond markets seized up in response to the news and the naira soon fell to a record low. Many believe the move was motivated by Mr Sanusi’s claim that $20bn of oil revenues had gone missing, something that severely strained his relationship with the presidency.

Later that day, Mr Jonathan nominated Godwin Emefiele, head of Zenith Bank, the country’s largest lender by Tier 1 capital according to The Banker Database, to take over from Mr Sanusi once his term formally expires in June.

Channelling independence

Should Nigeria’s senate approve him, Mr Emefiele’s first task will be to convince investors and bankers – some of whom viewed Mr Sanusi’s suspension as a hammer blow to the independence of the central bank – that he is his own man, not a political appointee.

That Mr Emefiele is a respected figure in Nigerian banking will help. He became Zenith’s chief executive in 2010, having been deputy head from 2001. Under him, the bank has performed strongly. Its 2013 pre-tax profit of $680m was the biggest ever made by a Nigerian lender and amounted to a high return on equity of 23%. Moreover, Zenith has a reputation for investing heavily in technology and good customer service compared with rivals.

Mr Emefiele and Mr Sanusi are contrasting characters. Mr Sanusi had few qualms about speaking his mind on topics other central bankers would not dare touch. In interviews with journalists, he would rail against corruption and wasteful spending in government, sometimes making enemies in the process. Even some senior local bankers, who otherwise speak highly of his achievements, say the controversy surrounding him had become disruptive to the central bank.

Reserved character

Mr Emefiele is far more reserved. He admits he is often uncomfortable doing media interviews. Those close to him predict he will avoid conflicts with legislators and issues that do not directly affect the central bank’s role of ensuring a stable currency and low inflation. But they add that this does not mean he will be any less independent than Mr Sanusi.

Analysts will scrutinise his early actions to get a sense of whether the central bank’s policies will change under his leadership. Most hope the bank’s tight monetary stance – it has kept its base rate at 12% since 2011, despite politicians calling for it to be cut – will be retained. This will be especially important in the run up to presidential elections in 2015, with the likelihood of extra government spending putting the naira under pressure.

In an interview with The Banker in Lagos a week before his nomination, Mr Emefiele praised Mr Sanusi’s monetary record and supported his recent increase of the cash reserve requirement for public sector deposits from 12% to 75%. “The central bank has a core mandate to achieve price and exchange rate stability,” he said. “If it did not pursue a tight monetary policy at this time, there would be increasing demand for foreign exchange. Given this, you could not blame it for tightening.”

Improving coordination

Mr Emefiele added, however, that the central bank had not coordinated its policies closely enough with fiscal authorities, suggesting that was something he would improve. “There’s a lot more work that can be done,” he said. “I have no doubt that whoever becomes the next governor will be independent. But notwithstanding that independence, you must walk a line with government policy. Monetary and fiscal policies must walk hand in hand for the growth of the economy.”

International investors laud Mr Sanusi. When he came to office in mid-2009, the Nigerian financial system was on the verge of collapse, inflation was almost 15% and the naira was highly volatile. Since then, banks have firmly recovered and inflation has dropped to 8%, its lowest level since early 2008. The exchange rate has largely been steady.

The next governor will still face plenty of challenges. Although Nigeria’s banking sector may not require as much attention, maintaining monetary stability will be increasingly difficult as political tensions rise ahead of the polls and with foreign portfolio inflows slowing as the developed world goes through economic recovery.

Mr Emefiele is no doubt confident he is up to the task. He will be keen to prove that even if he is very different from Mr Sanusi in style, he has the substance to match.

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Read more about:  Analysis & opinion , Interviews , Africa , Nigeria