In a situation that appears worse than that of 2016, multinationals and local firms that depend on foreign exchange for operations are reappraising their business continuity plans in Nigeria owing to “unfavourable regulations, currency devaluation and scarcity of the Greenback” for importation and backward integration.
With lower incomes and rising unemployment aggravated by the COVID-19 pandemic, many firms are reviewing their activities with a view to reducing exposures, as competition becomes stiffer amid lax controls.
Local demand for dollar by manufacturers has risen over $1.16 billion on the back of outstanding obligations, even as the Central Bank of Nigeria (CBN) moves to adjust foreign exchange rates in search of a uniform framework. The dollar exchanged briefly for N470 in the parallel market on Friday evening, after selling at N476/$ in the morning, but later closed at N477.
The marginal gain was attributed to the apex bank’s notice that it would resume foreign exchange sales to bureaux-de-change (BDCs) in respect of travels and others once international flights resume.
The CBN had been rationing dollar sales due to dwindling oil receipts, even as foreign capital inflows into Nigeria fell by $4.46 billion to $1.29 billion in the second quarter of this year from the $5.85 billion figure of the preceding quarter, according to the National Bureau of Statistics (NBS).
From Shoprite earlier in the second quarter of this year to Guinness Nigeria, a subsidiary of Diageo Plc, as well as many other Fast-Moving Consumer Goods Companies (FMCGs), and most recently, IrokoTV, one of Africa’s first mainstream online movie streaming websites, the challenge of sustaining their dollar-denominated businesses has reached a crescendo, necessitating a review for sustainability and eventual wind-down.
If business survival decisions are taken, the unemployment rate in the most populous black nation might rise further as affirmed by local manufacturers and even IrokoTv that said it would disengage 150 workers as part of a resizing process.
The Lagos Chamber of Commerce and Industry (LCCI) had said data on per capita income, poverty, unemployment, and food inflation affirmed worsening state of affairs.
Its Director-General, Dr. Muda Yusuf, submitted: “What is playing out in the foreign exchange market and the associated infractions are symptoms of the policy shortcomings in the management of the foreign exchange market.
“There is high degree of uncertainty which fuels speculation; there is a high component of forex demand driven by the arbitrage opportunities which differential rates offer; there is the component of demand driven by the accumulation of inventories of raw materials caused by the current opacity in the market; there is the desperation of non-resident portfolio investors to exit the Nigerian economy. Therefore, the policy response should be situated in the context of these underlying conditions.”
He added: “The disposition of the CBN to suppress market forces in the foreign exchange arena is a major issue. Attempting to subdue the market in a free enterprise economy is like swimming against the tide. It is not sustainable. It creates distortions, transparency problems, corruption, and drives forex and international trade transactions underground, and into the informal space.
“A market-driven forex policy would also incentivise the repatriation of export proceeds. It is unfair and unjust to compel exporters to offer their proceeds at N380 to a dollar when the open market is around N470 to the dollar. This disparity would naturally create compliance issues. It also contradicts the craving of government to promote export development. Exporters deserve an unfettered access to their export proceeds.”
With the virus already aggravating their dire situation, the Manufacturers Association of Nigeria (MAN) and other private sector operators described the CBN directive to dealers to stop opening Form M for payments routed through a buying company or any other third party, as one that could kill ailing firms.
MAN President, Mansur Ahmed, argued that a phased approach should be adopted to enable firms have sufficient time to re-organise and build sustainable relationships with suppliers.
“Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail into the coffin of many of our ailing members,” he said.
Guinness Nigeria Plc is weighing options to manage a $23 million debt as a lack of liquidity in the local foreign exchange market has made it difficult to refinance, Stanley Njoroge, finance and strategy director, said.
Having spent 15 years in Nigeria, Shoprite Holdings Limited claimed customers’ visits for the year declined by 7.4 per cent due to the COVID-19 lockdowns.
It also pointed out that outside South Africa, sales only increased by 0.1 per cent in the midst of an overall sales decline of 1.4 per cent for the period.
According to the report, the non-South Africa supermarket operation of the company, excluding Nigeria, contributed a paltry 11.6 per cent to the group’s sales. Its non-South Africa sales also declined by 1.4 per cent in the year under review, which it blamed on the lockdowns announced in several countries on account of the coronavirus.
Earlier, Shoprite Nigeria reportedly lost 8.1 per cent of sales in the second half of 2019.
On his part, the Chief Executive Officer of IrokoTV, Jason Njoku, in an article published on his website, said the organisation has been battling with the effects of naira devaluation since 2016.