March 10, 2014

"Nigeria's soaring economy has met its match: old-style politics"

Nigeria Politics | Africa Investing
Former Nigerian central bank governor Sanusi with MasterCared CEO Ajay Banga
"On February 20, President Goodluck Jonathan suspended central bank governor Lamido Sanusi amid the latter's claims that $20 billion in revenue was missing from the state oil corporation. The move sparked widening bond spreads and tumbling currency valuation in Africa's most populous state."

Jake Bright, Whitehead Fellow of the Foreign Policy Association, covered the complexity and complications of this event for Quartz, an Atlantic Media digital outlet. In Bright's article, Nile Capital Managements Larry Seruma is quoted as having said, "The market did not take his (Sansui's) suspension very well of for a number of reasons. Sanusi has been a good governor. He's been an inflation hawk. Current inflation is about 8%, the benchmark bank rate is about 12%, so you are getting a real rate of return of about 4% -- pretty unusual in frontier markets."

Bright wrote: "Foreign investor jitters immediately after the suspension led to a sell-off in Nigerian assets, a 3.2% one day drop in the naira, and an 11-basis point yield spike on Nigeria's 10-year eurobonds. Not all the blame rests with the Sanusi shake-up, though. Nigeria has been contending with the same economic flu affecting many emerging markets that have been dependent on US Federal Reserve policy and reacting to its taper

Nile's Seruma added, " As the Fed tapers, the interest differential between the high-yielding assets in Nigeria and developed market asset has shrunk. Because of that you are seeing more investors pull out of Nigerian equities and fixed income."

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