In Nigeria, entrepreneurs strangled by lack of foreign currency

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Bundles of dollars and naira at a bureau de change in Lagos, 2015.

Sent messages via WhatsApp are insistent: “I am looking for someone who could deposit 7,000 euros into our supplier’s account. But I’ll still need 30,000 next month. ” The nervousness of the Lebanese intermediary looking for an expatriate capable of providing him with foreign currency is perceptible. “I found the bulk of the money, but we still lack 640 euros”, he wrote a few days later.

These days in Lagos, the gigantic economic capital of Nigeria, the shortage of hard currencies is the number one topic in business circles, as the central bank, the CBN, ration the supply of dollars and intervene massively to stop the devaluation of the naira, the national currency, against the backdrop of a persistent economic crisis.

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“This is reflected in particular in high interest rates and a series of heterodox policies such as the ban on imports of around 40 everyday consumer products or the unilateral closure of the country’s land borders between August 2019 and December 2020 ”, details Yvonne Mhango, economist for the investment bank Renaissance Capital, in Johannesburg.

The fall in oil prices – of which Nigeria is the sixth largest producer in the world – during the first months of the Covid-19 pandemic dried up foreign exchange reserves. In the wake of the health crisis, these were also affected by the drop in remittances from the huge Nigerian diaspora (- 24% in the first quarter of 2021 compared to the previous year), whereas they were already increased from 23.4 to 16.9 billion dollars between 2019 and 2020 (from 20.9 to 13.8 billion euros).

Obstacle course

“There are no longer enough dollars in the coffers to support the currency, so the CBN has decided to limit the supply as much as possible on the foreign exchange market, in order to prevent its reserves from being totally siphoned off, in particular by private actors who need dollars to import ”, summarizes a diplomat stationed in Abuja, the political capital. Obtaining foreign currency at the official counter of the central bank has thus become a real obstacle course.

“A large company that needs 5 or 6 million dollars each month to operate will manage to have 500,000 or 600,000 at the rate of the central bank”, underlines the diplomat. “Sometimes you have to wait several months to get an import authorization. And again, we are only granted a small portion of the requested sum ”, also complains the owner of a retail business in Lagos, who wishes to remain anonymous.

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At the end of July, the CBN went further by stopping selling foreign currencies to exchange bureaus, accused of contributing to the instability of the market by practicing a conversion rate different from that applied by the monetary institution (around 411 naira for 1 dollar). But instead of stopping the bleeding, the move blew up parallel circuits and caused the naira to depreciate, which fell to 580 to the dollar on the black market on Friday, September 24.

Despite this prohibitive exchange rate, economic players have no choice but to turn to unauthorized resellers to meet their foreign exchange needs. “We find over-the-counter arrangements with companies that we know and that can invoice in dollars”, details the financial director of a subsidiary of an international group, who also prefers to keep her name in silence given the sensitivity of the subject to the authorities : “Other companies go through intermediaries, but in these cases it is much more difficult to verify the origin of the funds. ”

Structural problems

Under pressure from the CBN, the AbokiFX site, which served as a reference tool for knowing the exchange rate on the parallel market since 2014, has stopped giving this information since September 17.

“Now when I need to know the daily rate, I send our drivers to three different exchange offices to get an idea of ​​the trend”, continues the CFO. For others, the question is no longer there. “When I call my intermediary to pay my suppliers in Europe, I don’t even ask him for the exchange rate anymore, I just want to know how many dollars he will be able to provide me! “, exclaims the merchant already quoted.

While multinationals can still borrow from their headquarters in order to continue their activities, the situation is more critical for local companies. The Director of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir, plague the federal government, “Which absolutely does not support local production”, yet the the only solution to alleviate the country’s dependence on foreign currencies.

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“We should immediately release $ 2 billion for manufacturers so that they can continue to import the materials they need”, continues Segun Ajayi-Kadir, who recalls that the competitiveness of Nigerian industry is already hampered by a series of structural problems. “Imagine that it is as expensive to bring a container from abroad as it is to transport it from the port of Lagos to the warehouse located 27 km away! “, he laments.

Nigeria still successfully issued $ 4 billion in Eurobond bonds last week, on top of a $ 3.35 billion Special Drawing Right granted by the International Monetary Fund (IMF) in August. But this opens few long-term prospects, given the country’s liquidity needs and budgetary constraints. On Wednesday, a user of the AbokiFX site said he had traded 615 naira for 1 dollar, a sign that the pressure remains strong on the parallel market.

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