Sanusi and The Goblet of Fire
Finance is a gun; Politics is knowing when to pull the trigger” – Don Lucchesi
The country reacted in fits and stops when news of Sanusi lamido Sanusi’s suspension filtered through. The speed, the ramifications under the Central bank Act, 2007 which governs the removal of the CBN governor and various other issues, left for an Oscar worthy script by midday on the 20th of February, 2014.
The primary objective of any Central Bank, globally can be summarized in three simple points:
- Control inflation in order to promote price stability
- Sustain economic growth
- Attain full employment
The key roles that the central bank will perform include sole supplier of currency, influencing the amount of money supplied in the economy, banker to the government (and other banks) and holder/manager of foreign exchange reserves.
For any central bank to be effective at its functions, it needs to be independent (and objective), credible and transparent. The Central Bank of Nigeria under the Sanusi Lamido Sanusi can be said to have possessed these essential qualities. Unfortunately, the same cannot be said of all his other predecessors – the tenure of Charles Soludo (predecessor) ended up being a classic case study for the “regulatory capture” theory, where the interests of the regulated banks (and bank CEOs) were often enhanced by the regulation. Or the not-so independent tenure of Joseph Sanusi (further predecessor) where reports (or folklore) had it that the license of Savannah Bank (of blessed memory) was revoked because of a disagreement between Jim Nwobodo (a major shareholder in Savannah Bank) and the former President of Nigeria, Olusegun Obasanjo.
Every CBN governor has assumed office and vehemently pursued his own views, perspective and beliefs. Joseph Sanusi abolished merchant banks during his tenure, forcing all merchant banks to convert to commercial banks. Charles Soludo believed in bigger stronger banks, allowing bank CEOs to increase and expand their empire more rapidly than their competence could actually absorb. SLS repealed the universal banking license, by creating the separation between merchant banks and commercial banks.
In all of these, SLS is possibly the only CBN governor in recent times who has balanced the bank oversight responsibility as well as achieving at least one of the key objectives of a central bank. Under his tenure the banks have become healthier, the Nigerian markets gained credibility as he maintained interests at high levels in order to keep inflation to single digits; and most recently reducing excess liquidity in the system by increasing cash reserve on government deposits from 50% to 75%. In many quarters, SLS will be awarded a distinction for his time as CBN governor.
His tenure was meant to end in June, and he has explicitly declared his intention not to vie for a second term. Ahead of this announcement, dailies were inundated by silent campaigns of several candidates. However following the nomination of Mr. Godwin Emefiele by the President yesterday afternoon, all previous candidates can now get back to their desks. Market intelligence analysts, Proshare, was the first to release news of the CEO of Zenith Bank being tipped for the job earlier yesterday. And before midday, like a well-written script, the President had submitted his name to the National Assembly for ratification. The question of whether the President has powers to remove the CBN governor may be likened to the moral argument against tax evasion. The question of why the President was impatient for his tenure to end in a couple of months, remains an issue for philosophical discussions or conspiracy theories.
Very little is known of Godwin Emefiele; in 2010 he stepped into the larger than life, CEO’s shoes of his predecessor, Jim Ovia. During his time as Chief Executive, a number of feats have been achieved. In 2012, Zenith became the first and only Nigerian bank to record net profit in excess of N100 billion; Zenith listed its shares on the London Stock Exchange, Zenith was recognized several global brands recognition.
The debate is whether these achievements are directly related to his management and direction or simply consolidation of the sound foundation that his predecessor laid.
While everyone was raving, stock markets reacted wildly, as the fixed income markets (bonds and treasury bills) did not trade yesterday. The foreign exchange markets opened later but stopped trading when news of the suspensions/appointment of interim governor/nomination of next governor was released. However the CBN, later sold dollars to the banks as markets slowly unwound. While the general public will continue to observe as the markets react to the events of February 20, 2014, everyone will hold their breath as the most important reaction of them all is expected.