Nigerian manufacturers are struggling to stay in business because a foreign-exchange shortage spawned by the collapse in oil prices means they can’t import raw materials.
The industry’s difficulties are the latest signs of strain in Nigeria’s foreign-exchange regime. The central bank was forced to devalue the naira in March as income from crude sales that generate 90% of the West African nation’s export earnings dried up. Foreign investors looking to repatriate their funds have been asked to be patient.
Members of the Manufacturers Association of Nigeria have been unable to access hard currency for the past five weeks, the group said in a report at the weekend. Investment bank FBNQuest estimates there’s a $1 billion backlog of unmet dollar demand in Nigeria.
“Everybody is trying to remain afloat,” Mansur Ahmed, president of the MAN, said Monday. “Certain sectors will suffer more than others, notably those companies that are heavily dependent on imports” such as pharmaceuticals, electrical-products and automobile businesses, he said.
The naira currently trades at 445 per dollar on the streets of Lagos, the commercial capital, compared with the official rate of 386 per dollar. Twelve-month naira forwards were trading at about 514 per dollar on Monday, suggesting investors see the currency falling to around that level in a year.
Economies around the world, developed and emerging alike, have been caught short of dollars thanks to the coronavirus crisis. A small group has benefited from swap lines with the U.S. Federal Reserve designed to alleviate those pressures, which became particularly acute in March. Nigeria is not on the list, which does include countries such as Brazil and Mexico.
As Nigerian manufacturers turn to domestic suppliers for raw materials, machinery and spare parts, the association appealed to the central bank to review rules hindering the ability of lenders to extend credit. This includes “policy contradictions” that require banks to lend 65% of their deposits — a measure aimed at stimulating credit — while parking 27.5% of their capital with regulators, which makes a “lesser quantum of money available for lending,” the group said in a statement.
Manufacturers are also seeking lower interest rates and bigger loans, the size of which “has shrunken greatly” as increased borrowing by the government crowds out companies, MAN said. Nigeria’s monetary policy committee bucked the global trend of slashing borrowing costs to minimize the fallout of the coronavirus because of persistently high inflation, keeping its benchmark rate at 13.5% in March.
Central Bank of Nigeria spokesman Isaac Okorafor didn’t answer calls seeking comment.
The central bank previously had multiple exchange rates that applied to exporters, investors, foreign-exchange bureaus and others. The system was an effort to control demand for dollars and help keep the naira steady — a lynchpin of President Muhammadu Buhari’s economic policy.
The bank abandoned the policy on March 21 when it devalued the currency after oil prices more than halved, raising pressure on crude-dependent economies like Nigeria. The country is Africa’s largest producer of the commodity.
On Sunday, central bank Governor Godwin Emefiele said the bank has put in place an orderly process for investors looking to repatriate their funds, but they’ll need to wait. The country’s available foreign-exchange holdings will be devoted to strategic imports or to service obligations that are a priority, he said.
Last month, as part of its request for $3.4 billion of emergency funding to help the government deal with the fallout from the coronavirus pandemic, the central bank promised the International Monetary Fund it will seek a more flexible and unified naira.
The central bank has said that 1 trillion naira ($2.6 billion) of its virus intervention fund will be used to support domestic manufacturing. The industry was the biggest borrower in the nine months through February, which the central bank has attributed to its policies that forced lenders to extend more debt to the private sector.