Nigeria’s currency scarcity remains a nightmare that won’t go away, with even Africa’s richest man Aliko Dangote feeling the pain.
The West African country’s economy has been hammered by the global crash in oil prices – worth 70% of its revenue and the bulk of its dollars – and ongoing rebel attacks on oil infrastructure in the southern swamplands.
But the response to the naira’s slump has made matters worse.
In February 2015, the central bank fixed the naira at 197-199 per dollar in an attempt to stop its rapid plunge.
To protect its foreign reserves, Nigeria banned the importation of many goods, ranging from toothpicks to rice.
Propping up the naira proved costly for the import-dependent country. Facing the imminent depletion of its foreign reserves and double-digit inflation, Nigeria was forced to abandon the peg in June this year.
Yet the country is still suffering the consequences of the peg as it wrestles to overcome an enduring currency scarcity.
A wave of multinational firms, including South African hotel and gaming group Sun International, have left Nigeria, citing forex concerns.
Recently Nigerian billionaire Dangote, a manufacturing tycoon with a range of companies spanning cement to flour, has reduced staff because of “operational costs”.
“This year has been a very challenging one for us as a business. The unavailability of foreign exchange, coupled with an unprecedented hike in the exchange rate has resulted in increased costs across the organisation,” Dangote warned in an October letter.
Once Africa’s poster child for booming growth, Nigeria announced in August it was in recession.
Business leaders say if Dangote is hurting, then there’s a serious problem.
“It’s unfortunate,” Muda Yusuf, head of the Lagos Chamber of Commerce and Industry, told AFP.
“Not many businesses have access to the official forex window to source for their requirements to bring in the needed raw materials for production,” Yusuf said.
Part of the problem is that it appears the naira is again being held at an artificially high rate, explained Yusuf, who says that the currency should be allowed to “fully liberalise.”
Officially Nigeria’s naira is 305 to the dollar, but today it is trading up to 460 on the black market, where most businesses get their cash to bring in raw materials and supplies.
“A flexible exchange rate regime will encourage inflows,” he said.
“If this is done, the supply side of forex will improve and there will be more dollars to go around.”
Airlines pull out
The painful impact of Nigeria’s forex crisis can be clearly seen among international airlines.
Last week, Persian Gulf airline Emirates and Kenya Airways said they would suspend flights to the Nigerian capital Abuja from October 30 to November 15.
However, both carriers added that they would continue to fly to Lagos, the country’s commercial hub.
The announcement comes after US carrier United and Spanish airline Iberia halted their Nigerian operations earlier in the year, citing limited inability to repatriate their profits because of unavailability of forex.
Other international operators complained that Nigeria owed them hundreds of millions of dollars from ticket sales as the government holds on to the dollars to boost its reserves.
Analysts say it’s only a matter of time before the naira is devalued again.
“Although there remains heavy opposition to further devaluation within the Nigerian administration, we believe that macroeconomic realities will force some further downwards movement in the naira this year,” BMI Research said earlier in October.
With investors shying away, Nigeria is struggling to implement a record budget designed to stimulate growth.
Nigeria normally produces 2.2 million barrels per day (bpd), but output dropped to a low of 1.4 bpd this year as a result of rebels attacking pipelines, with no signs the militants are ready to lay down their arms.