Insight: Pre-electoral feuding threatens Nigeria's economy

Wed Oct 2, 2013 5:45am EDT
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By Tim Cocks and Joe Brock

LAGOS/ABUJA (Reuters) - In Nigeria, as elsewhere, foreign exchange markets can be a barometer of internal strife, so when central bank governor Lamido Sanusi noticed a surge in dollar demand at forex bureaux in July, he feared something was amiss.

The bank found tens of billions of naira was traded for dollars in cash, much more than importers needed to buy goods or investors to repatriate funds, and there was no trace of where the money came from or where it was going.

"Obviously this was some form of money laundering to cover all the trails," Sanusi told Reuters. "And with interest rates as high as they are, the only people who can take that much naira and buy dollars are people who are not borrowing their money."

The prime suspects, he says, are politicians jockeying for position ahead of what look likely to be bitterly divisive 2015 polls in Africa's second-biggest economy.

He blames "dollarisation of the economy by political elites" for continued weakness of the naira, despite central bank moves to prop it up with dollar sales that have depleted its reserves to an eight-month low.

Some economists dispute that explanation of the currency's troubles, but it highlights the economic risks of Nigeria's costly and often violent pre-electoral politics.

Nigeria's growth rate of more than 6.5 percent and its huge consumer market are a draw for foreign investors, but they worry about stability and the country's tendency to squander its windfall as Africa's biggest oil producer.


A sign advertising the sale of a house is pasted on a wall in the Victoria Island district in Nigeria's commercial capital Lagos September 10, 2013. REUTERS/Akintunde Akinleye