this blog is spored BY reflex Eco Group
VENTURES AFRICA – On Thursday, February 20, 2014, governor of Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi was suspended by President Goodluck Jonathan, sending chills down the spines of investors and giving market watchers something to chew on over the coming weeks. Nigeria’s economy hasn’t been thrown into such uncertainty since the last financial crisis in 2008.
Already, headlines on international media have indicated the world’s perspective on the announcement, with shocking reactions trailing his ousting. EcoBank’s head of economic research, Angus Downie, who was quoted by Business Day, said “The immediate reaction to Sanusi’s dismissal is a knee jerk reaction.” As Nigerians and the world further digest this news, what economic implications does his removal portend?
Reduced Investors’ Confidence
Nigeria has experienced positive economic results in recent years, strengthening foreign investors’ interest in the opportunities for profitable investment. Steady GDP growth rate of 7 percent in last 5 years, a relatively stable naira, and a healthy financial market have fostered an influx of international investment, with FDI stock rising to $85 billion.
Since he assumed the position of governor, Sanusi has proved his mettle as a sound economist and reformer by maintaining macroeconomic stability in the midst of Nigeria’s economic challenges. He had rescued the banking sector from a potential collapse, tightened monetary policies to stabilize the currency. By 2013, inflation had dropped to about 8 percent.
With his sudden removal, and the surrounding circumstances, investors are expected to become wary of the uncertainty that meets this announcement. Alan Cameron, an economist at Nigerian Stockbroker CSL, said “speaking from the perspective of international investors, this is likely to go down badly.”
Sanusi’s ouster may signal a massive exodus of foreign investment, especially because of the manner in which his suspension came which has been described as illegal by several opinion makers. The implication of this for a country whose reputation was just getting better thanks partly to the suspended governor’s anti-corruption crusade can only be hard on the economy.
Negative Market Reaction
With the currency already pressured by US Federal Reserve’s ‘tapering’, market outlook has suggested investors have been cautious, with Naira opening at N164.050, and trading as high as N169. The naira subsequently fell more than 1 percent to 165.80 on the news of Sanusi’s suspension, Reuters reported.
Stock Market watch at noon also indicated investors were selling massively. Investors’ cautiousness and pessimism was reflected on the country’s bourse as stocks were down by 1.8 percent in early noon session. Traders’ concern about sell-offs made the bond market close after the announcement of Sanusi’s suspension.
Following the nomination of Godwin Emefiele, the MD of Zenith bank, as the man to replace Sanusi, market watchers are wary of what strategies might be employed to further grow the economy. Though a seasoned banker with more than 26 years banking experience, he might seek to change the current approach in a bid to make his own mark.
Pending his confirmation by the country’s senate and subsequent resumption in June, an air of scepticism will hover around the economic sphere. Local and international investors will eagerly scrutinize his early decision to determine the future direction of the micro and macro sectors of Africa’s second largest economy.
The onus lies however on the acting governor to maintain a stable economic outlook at this challenging period.