Interview with Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria

Sanusi Lamido Sanusi, the Governor of the Central Bank of Nigeria, has been one of the most talked-about people in public office in Nigeria in the past five years. He himself has also been one of the most outspoken Nigerians in public office. Among his peers, he is considered the Central Banker’s Central Banker in Africa. Omar Ben Yedder met him in Washington during what will be his last World Bank meeting, as he is stepping down from his position in June next year. He looks back at his time at the helm of the Nigerian financial industry and what the future might hold.

Sanusi has never been conventional, either in his thinking or in his dressing. Instead of the standard black suit and tie, he sports colourful bow ties or the Mao-style collar. On bigger occasions, as the grandson of the Emir of Kano, he will don traditional dress from northern Nigeria, where he hails from. 

During interviews, he never shies away from answering a question and always speaks his mind. Some of his critics say this has caused unnecessary chaos in the financial markets and that a number of policies, albeit right in principle, could have been handled in a much gentler fashion to avoid adverse market reactions. 

His fiercer critics, as well as some bankers we had spoken to, dislike the shock therapy treatment he seems to favour and the often-surprising policy changes he makes. 

But, he says, “If people listen, I always give forewarning. If you take the recent current foreign exchange regulations, I’ve been speaking about it at least two or three Monetary Policy Committee meetings (MPC) ago. I was talking about these concerns around the foreign exchange market and the dollarisation of the economy and the high level of imports in MPC press conferences, and said we’re looking at these things.”

Perhaps his most dramatic period was when, following a major crisis in the industry in 2009,he took ruthless, and brave action, against some of the biggest players in the country. Five high-profile banking chief officers were arrested and eventually sent to jail and a number of tottering banks were taken over by the state. 

This upsetting of the apple cart caused a huge outcry among the high and mighty in the country and he was accused of vindictiveness, of settling scores and even of victimising certain ethnic groups. 

He shrugs off these accusations. “I don’t think there was any way, coming into the Central Bank at the time of financial crisis,” he says, “that I could have acted any differently from the way I did – unless I wanted to either pretend that there was no problem when there was one, or continue doing too little too late.”

He goes on to add: “It was very clear to me, and this is a matter of principle, that if you are regulating banks and supervising banks, and if you find a big problem, the best way to deal with it is to come out clean and say this is a problem and then come up with a solution. I was shocked by what I saw. I knew that for the banking industry to survive, we needed to act very quickly and decisively.” 

He had discovered that some of the leading banks in Nigeria, which appeared sound on the surface, were in fact hollow structures carrying massive bad debts and other ills.

“I was also very conscious of the fact that we had very little time in which to do it. The markets were not going to wait for ever. Nigeria is not the US – if Citibank was going under, there would always be capital from somewhere in the world flowing in to save Citibank – but there was going to be no capital coming to bail out Nigerian banks from outside Nigeria. And the government balance sheet was not strong enough to go and raise a lot of leverage to recapitalise the banks, so it was up to the Central Bank to figure out what to do.” 

SMEs ignored by banks

Some interpreted his actions as a repost to the policies of his predecessor, Chukwuma Soludo, who had presided over a sweeping bank consolidation exercise back in 2005, which led to a drastic reduction of the number of banks in the country and the amalgamation of several smaller and weaker banks into larger entities. When the dust had settled, the earlier unwieldy industry had been whittled down to a core of sound institutions. This had created a stronger and more powerful financial services sector before the rot had set in, threatening to bring down the whole industry. 

This was when Sanusi had taken the sword to, as he put it then, hack off the
diseased limbs before the contagion spread to the entire financial sector. 

He laughs off the suggestion that his motives were aimed at undermining the policies Soludo or that he was opposed in principle against large banks. 

“First of all, I’ve never had a go at my predecessors and, secondly, I’ve never really said that large banks were not good for development; what I did say was that a banking structure in which you have just a group of very large banks and some microfinance institutions does not leave the space for medium-sized banks that would lend to SMEs. 

“The very large banks seem to put their money in government securities and lend to large multinational corporations while the microfinance banks often don’t have enough capital to lend to SMEs; so we’ve got this big middle that is underbanked. “Therefore there has to be a structure that ensures that the part of the economy that recruits 50%, 60%, 70% – depending on where you are – of the population does have a banking system that serves it.” 

To bridge this gap, Sanusi says that the central bank has been looking at amending the rules to allow for the creation of smaller regional banks, medium-sized institutions, to address the needs of the underbanked segments.

Balancing costs and benefits

This year has seen many major emerging market currencies depreciate, notably the Brazilian real and the Indian rupee, in part because of the announcement by the US Fed that it would stop its tapering programme (buying US treasuries and thus effectively indicating the end of ‘cheap money’). 

The Nigerian central bank has had a clear policy of defending the naira against any devaluations, even if it has meant eating into the country’s foreign reserves. 

Again, this is a policy which Sanusi is very clear about: “My job is to provide stability and if I think the exchange rate is a fundamental channel for instability or stability, that’s got to be very important to me. In an economy that’s import dependent – for its food and its energy; in an economy in which oil continues to play the kind of role it plays where foreign reserves are always being looked at by portfolio investors; the pass-through effects through inflationary expectations of currency devaluation are very high.” 

He says he is not all convinced that there is a fundamental economic argument for devaluation in an economy like Nigeria’s.

“First of all, our exports are all denominated in dollars, therefore the value of the naira has absolutely no impact on how much we export our oil. Secondly, our imports are highly inelastic, which means that if you devalue the currency all you do is increase the cost of imports without necessarily reducing import quantity. 

“You end up not improving the current account position, which is one of the key arguments on devaluation, and you don’t improve the competitiveness of your industry because your manufacturing is not exported anyway and it is also highly import dependent. 

“So whatever benefits you get from any kind of tweaking of the exchange rate are immediately wiped out by the increased costs of production. For me, there’s no strong economic argument for a devaluation in the country.” 

He argues that his task is to judge where the balance of costs and benefits lies in ensuring stability. Costs could include very high interest rates or dipping into reserves.

“My view at the moment is that with $45bn in reserves representing about 11 months of import cover, we should continue to support a stable currency.” He adds that it is “not an obsession” but he believes it is one of the critical elements that has helped Nigeria achieve single-digit inflation and anchored expectations.

When five powerful CEOs of banks were sent to jail, it was said that there were threats to Sanusi’s life. Nigeria can be notoriously difficult to operate in because of the ‘vested interests’. 

So how difficult was it for him to take on these groups? 

“Every individual in public office has to take a decision for himself or herself as to how they want to respond to vested interests. Do you want to be intimated by them? Do you want to be co-opted by them? Do you want to basically avoid annoying them or do you want to take them head on? It’s not something you give advice to someone to, it’s individual decisions that we take.” 

Expanding on the theme of vested interests, he says: “I was very clear in my mind and have always been clear in my mind that 90% of the problems of Africa have to do with vested interests who profit from the way things are done and who resist change. 

“Some people in the banking industry in Nigeria used to lend money to themselves and to their friends and cronies and not repay these debts. This was leading to banks collapsing whilst they continued with their business. Therefore anyone that said this is going to change was always likely to meet opposition. 

“If you are a central bank governor and you see huge fiscal leakages and you choose to speak up, you are likely to annoy the people who are either involved in creating those leakages or those responsible for putting in place controls but who failed to do so.” 

He says that what he has done is to set a benchmark and establish a standard which future central bank governors will have to maintain and even rise above. 

“I think by the time you’ve established a tradition for being forthright, for being transparent, for confronting vested interests as an institution, it becomes less easy for one individual to go back to old ways. I mean the employees would know this is not how we do things, the markets will say this is not what we’ve come to expect and maybe even the government will say this is not what this is about and the individual concerned will see it immediately and fall in line.”

He is confident the central bank has strengthened its institutional framework and is a much stronger regulatory body than it used to be. It employs over 6,000 people across the country (the World Bank employs 12,000 globally) but Sanusi thinks this is a fair amount given the size of the country and the number of financial institutions it needs to regulate. 

But he also thinks that institutions in the continent “needs strong individuals that will continue protecting that institution. Otherwise if you have the wrong persons heading the institutions then the institutions themselves do not do what they’re supposed to do.”

Does he have any preferences or a say over who his successor might be? “I don’t know how it happens,” he says. “It’s entirely up to the president of the country. If he would like to seek an opinion or a recommendation or a view before he does it, it’s his decision.” 

What is the state of Nigeria as a country today? He speaks positively of the privatisation of the power sector, developments in agriculture and a GDP growth of 6% despite a slowdown of the oil sector. 

Yet he acknowledges that it still has to deal with the general perception of not being firm enough on corruption, the very low levels of investment in gross fixed-capital formation, not investing in capital projects and the high levels of recurrent government spending building up domestic debt. 

Growth beyond numbers

Nigeria still lags behind South Africa in many areas of development despite its much larger population and the size of its economy. Some commentators argue that sub-Saharan Africa’s largest two economies need to strengthen their economic ties to propel growth throughout the continent. 

Sanusi is more pragmatic: “I think what’s more important is for each of them to try to be a growth pole in their areas. As a Nigerian policy maker, I don’t think that the best policy for Nigeria is to continue seeing itself as a market for South African goods, in which case South Africa will just be like China or America or Britain. 

“We need to see South Africa as a partner, also as a competitor. We need to build a manufacturing base in Nigeria. In much the same manner that South Africa has dominated and become the engine of economic growth in the southern African region, Nigeria should be the engine of growth in the western African region. 

“Not just growth in terms of headline GDP numbers but in terms of manufacturing capacity, job creation and actual agricultural production technology and so on; that’s the future.”

He does call, however, for greater collaboration amongst African regulators, especially as banks are becoming increasingly multinational. This problem was highlighted recently by developments in Ecobank Nigeria and its holding company ETI, which is domiciled in Togo. 

The Central Bank had written about its unhappiness with issues of governance relating to some loans to a company owned by ETI’s chairman, Kolapo Lawson. 

Sanusi’s concern is that Ecobank Nigeria, which represents 40% of ETI’s total assets, is an important component of the holding company and therefore anything which impacts ETI will impact Ecobank Nigeria, which falls under his supervision. (Lawson has stepped down as chair of the ETI board).

“I don’t have a problem with Ecobank Nigeria; it’s a bank I regulate and supervise, but there is clearly regulatory arbitrage if it’s owned by a holding company that’s officially supervised by another regulator and I don’t have much visibility on how that supervision is done. 

“I have sat down with the governor of BCEAO (Banque Centrale des États d’Afrique de l’Ouest)and they insisted that we want to see that ETI is brought under close supervision of the Commission Bancaire and also that we have a supervisory college in which the Central Bank of Nigeria is involved.”

No to politics

Discussing his future when he leaves the bank, Sanusi has been quoted as saying that he would prefer to be the Emir of Kano rather than the President of Nigeria.

“I have never had any kind of political ambitions and I don’t really see myself as a politician. I have no preparation for politics. My grandfather was an Emir and it’s natural that that’s what I would like to be.” 

He sees himself as a ‘public intellectual’ and whatever he does in the future he would like to bring a intellectual dimension to it. For the time being, he says, the first priority will be his family. 

As our meeting draws to a close (he was scheduled to have a meeting with Donald Kaberuka, the AfDB President), he tells us that Washingtonand the World Bank are also of no interest. 

What does interest him intellectually is the whole issue of development. 

“From a policy perspective, if there’s one thing I’ve discovered as Governor of the Central Bank, it’s that you can deliver financial stability, but stability still doesn’t put food on the table and it doesn’t get children to school; so somebody has to do the real development work, somebody has to invest in education, in healthcare, in infrastructure and create opportunities for the poor.

“One of the saddest things for me as a policy maker is the recognition that we’ve got so much wealth but it seems to be circulating in a few hands and there’s very little that gets to trickle down in terms of policy. 

“So if I ever found myself with an opportunity to help do that, it’s something that I would take on.” 

We won’t have seen the last of Sanusi when he steps down from his office next year.