The country’s president, Goodluck Jonathan, hemmed in by allegations of corruption at the state oil company, has yielded to a reckless gamble. The result has been a mini-crash in Nigeria’s financial markets and a grave setback to the country’s progress towards securing macroeconomic stability.
On February 20th Mr Jonathan suspended Lamido Sanusi, the boss of Nigeria’s central bank, on the grounds that he was guilty of financial misconduct and of distracting his institution from the business of setting interest rates and regulating banks. Mr Sanusi, who planned to step down in June after a five-year term, was admired for achieving single-digit inflation and for cleaning up the banking system in 2009 after an orgy of ill-advised lending. News of his removal led to a slide in the naira, a sharp drop in the stockmarket and a temporary halt to bond trading. The announcement that Godwin Emefiele, an experienced banker, would succeed him in June has done little to restore confidence.
The sacking of the central-bank governor would cause investors to flee from most places, but it is especially damaging in Nigeria. A fortnight before his removal, Mr Sanusi presented evidence to parliament that $20 billion had gone missing from the state oil company. Such allegations are hardly new, but Mr Sanusi had given them the authority of his office. The timing of his suspension and its vague justification suggests that he is being punished for acting as a responsible public servant.
The consequences will be felt beyond Nigeria. In Africa it is the most populous country and, once revised estimates of GDP are published at the end of March, likely to be confirmed as the largest economy. So its fortunes are central to opinion about Africa, which had greatly improved. The continent’s GDP has grown by a healthy 5.6% a year in the past decade. Foreign-direct investment to Africa has been growing more quickly than to developing countries overall. Private-equity firms have snapped up assets from land to logistics companies. Kenya will soon join the dozen or so African countries that have sold blocks of dollar-denominated bonds to rich-world investors to finance roads, railways and power stations.
Not long ago African countries had to be relieved of the burden of past borrowing. The change in their fortunes owes much to budgetary discipline and to efforts by central banks to cap inflation. But Mr Jonathan’s bid to rid himself of a turbulent central banker is a setback. Investors may doubt that Mr Sanusi’s successor will keep interest rates high in the run-up to next year’s election, lest he incur the president’s displeasure and lose his job. And in a country where the oil industry accounts for almost 80% of government revenue, the sort of leakages alleged by Mr Sanusi undermine the maintenance of foreign-exchange reserves and fiscal buffers.
The damage to Nigeria’s reputation for economic management cannot rapidly be undone. But Mr Jonathan should hurry to mitigate it. He must first ensure that Ngozi Okonjo-Iweala, Nigeria’s respected finance minister, stays in office and is supported in her efforts to curb a pre-election splurge in public spending. Ms Okonjo-Iweala offers perhaps the best reassurance that the central bank’s main task of controlling inflation will not be compromised. Mr Jonathan should now go out of his way to bolster the central bank’s autonomy through his words and his actions.
He must also ensure that Mr Sanusi’s allegations are investigated thoroughly and that a promised audit of oil finances is credible. Tellingly, although Mr Jonathan chose to suspend Mr Sanusi on obscure grounds, he has supported Diezani Alison-Madueke, the oil minister and a close ally, in the face of more serious and concrete allegations against her ministry. Replacing her would send a strong signal that he was serious about fixing Nigeria’s oil industry. It might also go some way to repairing the dents Mr Jonathan has inflicted on Nigeria’s economy by his ill-judged manoeuvre against the central bank.
