For all the plaudits he gets abroad, Nigeria’s central bank governor, Sanusi Lamido Sanusi, is often the target of heavy criticism within his home country from politicians, media pundits and even some financial analysts.
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Plenty of ire is directed towards the Central Bank of Nigeria’s tight monetary policy. It has kept its benchmark interest rate at 12% since October 2011, despite facing calls to cut it, and increased banks’ cash reserve requirement from 8% to 12% last July. Such measures, say critics, have left businesses struggling to access funding.
Tough love
If Mr Sanusi’s detractors hope he is going to cave in to the pressure, they are likely to be disappointed. For him, low double-digit interest rates are a small price to pay for Nigeria’s financial and monetary stability of the past 18 months. In an interview in Abuja, he points out that when he became governor in June 2009, the dollar was being sold in bureaux de change at 180 naira, compared to an official exchange rate of 145; inflation was almost 15%; the banking system was on the verge of collapse; and the equity market had lost 70% of its value in the previous year.
Since then, much has improved. “When you’ve had stable exchange rates for almost two years, when your banks have been fixed, when the capital markets are coming back, and when inflation – despite fuel subsidy removals and a global rise in food prices – is relatively tame, it’s very easy to complain about rates of interest,” says Mr Sanusi. “But everything comes with a cost. I’m not going to risk that stability at this point in time.”
He does not rule out rates being lowered this year, but says Nigeria’s monetary policy committee (MPC) will first want to see evidence that January’s figures, which showed inflation had dipped to 9%, the first time it has been in single digits since mid-2011, were not an anomaly. “We’re not in a hurry to signal an end to the tightening cycle and risk a reversal of capital flows or new pressures on the currency,” he says.
Despite its cautionary stance, the central bank advocates the removal of fuel subsidies, something the government attempted in January 2012 before partially reinstating them amid nationwide protests. Mr Sanusi says any short-term increase in inflation caused by a cut in subsidies, which cost the government about $8bn in 2011, would be outweighed by the fiscal benefits and the likely rise in foreign exchange reserves that would result from falling demand for imported petroleum products. “I wouldn’t advise the government not to remove the subsidy on the basis of monetary considerations,” he says.
Banks’ DNA transformed
Mr Sanusi’s most impressive achievement since coming to office has been salvaging Nigeria’s banks after their 2009 crisis. Today, their capital adequacy ratios average more than 20% and non-performing loans, which had soared, are back below 5%.
The governor says, moreover, there has been a transformation from banks merely buying government bonds and funding blue-chip companies to them also focusing on what he calls “the middle part of the economy, where growth happens and jobs are created”. This includes industries such as agriculture and manufacturing, which have long been neglected by lenders. “The DNA of the entire sector has been changed,” he says. “If you spoke to all the bank CEOs, you would find a shared understanding that the banking industry needs to return to its raison d’être, which is to be an intermediary of savings into the real economy.
“We’re not where we want to be. But the days when banks shied away from or didn’t see this as a core function are gone.”
Another priority for the central bank has been to instil the notion that depositors’ funds should not be put at risk for the sake of shareholder returns. Its actions throughout the crisis – which included bailing out lenders that failed stress-tests in 2009, pushing for corrupt executives to be prosecuted and nationalising three institutions it felt would not meet its deadline to recapitalise – exemplified this. It was also behind the decision to ban universal banking models and revert to the system Nigeria had before 2000, when there was a separation between commercial and investment banks.
“There’s now a general recognition among bankers that the depositor is king, not the shareholder,” says Mr Sanusi. “They’ve seen how we’ve wiped out shareholders, removed management and put people in jail because of deposits.”
Crisis central banker
It is largely because of the renewed health of Nigeria's banking sector that Mr Sanusi says he will stand down as governor when his five-year term expires in June 2014. “I will not be offering my services for a second term,” he says. “The job is extremely demanding. I don’t think it’s something that I would like to do for 10 years. I also think I have certain skills and a temperament that are suitable for a certain phase. I’m a crisis central banker. I came at a time of crisis.
“I consider my job to have been to fix the crisis and restore stability, and to make sure we did that in such a way that no bank failed, no depositor or creditor lost money and fiscal costs [were minimised], which is why we tried to get the banks themselves to bear the costs.”
To reduce the cost to the government of its intervention, all banks are being charged an annual levy by the Asset Management Corporation of Nigeria (Amcon), a state-owned bad bank created in 2010 to buy up toxic assets. Law-makers are working on an amendment to the Amcon Act, which will make such payments legally binding.
Mr Sanusi hopes this passes in the next 15 months. He also wants the three nationalised banks – Keystone, Mainstreet and Enterprise – sold in that period, a process which Amcon is overseeing. “Frankly, by the time Amcon starts exiting those banks and we have the law that guarantees the banks bear the costs of the bailout, my job is done,” he says.
Growth not enough
Mr Sanusi, a former risk manager and head of First Bank, Nigeria’s largest lender, has long spoken of the need for structural reforms in the country's economy. He believes these will be far more effective in enticing banks to lend to the private sector than looser monetary policy. “Banks’ ability to diversify their portfolios depends on a number of things,” he says. “You can’t get them to lend to the manufacturing industry if manufacturers aren’t viable because there’s no power, security or infrastructure.”
Nigeria’s macroeconomic indicators would be the envy of most countries – real gross domestic product (GDP) is set to rise by more than 6% this year, it has a current account surplus equivalent to about 8% of GDP and its debt-to-GDP ratio is less than 20%. But Mr Sanusi says such figures are doing little to reduce poverty in the country. “We shouldn’t get carried away by a 6% headline [growth] figure,” he says. “If the economy is expanding at 6% and the population at 2.5%, how much are you really growing on a per capita basis? A lot of that growth is also one in which you have huge inequalities in income. It’s not growth that lays the foundation for social and political stability.”
He warns, moreover, that Nigeria, Africa’s biggest oil producer, can no longer take high earnings from crude exports for granted. “You can’t have a situation in which growth is driven by a rise in commodity prices,” he says. “We’ve had strong oil prices and good output. But given what’s happened with the shale oil finds in the US and that country’s increased energy independence, and given the new oil finds across Africa, the outlook for oil growth is very weak.”
Crucially, however, he says the government’s fiscal management has been far better since Ngozi Okonjo-Iweala became finance minister in July 2011, particularly when it comes to reining in recurrent expenditure. “From the time Ms Okonjo-Iweala came on board, there has been significant improvement,” he says. “We [the central bank and finance ministry] have been speaking the same language. And you can see the results.
“With our monetary and fiscal policies, we have provided macroeconomic stability. But stability is not an end in itself. We need to take advantage of it and push forward with structural reforms. If we can do that, then we could easily reach double-digit growth and make it sustainable.”
It is an argument he believes should be heeded by those calling on central banks to do more to stimulate GDP growth in the developed world. “If the idea is being sold that somehow central bank generosity can compensate for fiscal and structural [deficiencies], then that is, in my view, misguided,” he says. “The idea that the US Federal Reserve, the Bank of England, the European Central Bank or the Bank of Japan can continue increasing money supply and bring an end to the recession by printing more money is short-sighted. It might deliver temporary relief. But it will come back to hit us.
“I don’t think central banks deliver growth. They deliver stability.”
