Exports the answer as firms hunt dollars in forex-dry Nigeria
NIGERIA’S hard-currency shortage is forcing companies to get creative in their hunt for dollars. For many, including Dangote Cement, that’s meant a bigger focus on exports.
The continent’s largest producer of the building material has about 1 500 trucks hauling cement across the border to Benin, Ghana and Chad to access hard currency, chief executive Onne Van Der Weijde said.
Diageo’s Nigerian unit said it was considering shipping products, including Guinness stout, to South Africa, while imported clothing entrepreneur Chris Aniagolu is talking to local factories about bulk purchases of shoes he will export to other West African countries.
“It’s time to take some bold steps,” Aniagolu, 45, said at one of his wholesale outlets in Lagos, glancing at empty shelves and racks. His company cannot get enough dollars to replenish stock from China, Italy and Turkey. The first customer of the day wants to order 100 pairs of jeans, he has to make do with half that amount.
Companies in Nigeria are struggling after the decline in oil prices cut government revenue and caused a shortage of foreign currency, causing the economy to shrink last year for the first time since 1991.
The central bank has also blocked importers of 41 selected goods, including textiles, from the interbank foreign-currency market. The lack of dollars has forced businesses like Aniagolu’s to buy foreign currency on the black market at about 25 percent more than the official rate.
The dollar squeeze has been exacerbated by the central bank opting to keep a tight grip on the naira’s value. Investors say the bank has held it at around 315 against the dollar on the official market since August, even as the black market rate tumbled to 380.
It makes sense that companies are trying to export more to reduce their dollar needs from the interbank foreign exchange market, said Sugun Ajayi-Kadir, director-general of Manufacturers Association of Nigeria. “It’s a difficult situation where you have nothing to export, or you can export very little, whereas your dollar need is big,” he said.
Exports are a helpful source of dollars for Dangote Cement, controlled by Africa’s richest man, Aliko Dangote, as it struggles to access foreign exchange needed to pay for imported raw materials and equipment, Van Der Weijde said. Dangote’s struggling to maintain its plants, he said, and the company has signalled expansion plans may take longer because of the foreign-exchange shortage.
“We’re muddling through, but it’s painful,” he added. “To see that your plants aren’t getting the maintenance they should is painful. That’s because of foreign exchange.”
Guinness Nigeria, the country’s second-biggest brewer, said in September it planned to increase exports to improve sales and generate more foreign exchange.
The Diageo unit was looking at selling Guinness stout and the herbal drink Orijin in South Africa, chief executive Peter Ndegwa said.
Soft-drinks maker Seven-Up Bottling, the producer of brands including Pepsi and Mountain Dew, also wants to export more to neighbouring countries to access hard currency, according to chief executive Sunil Sawhney.
The Lagos-based manufacturer also wants to try its hand at trading agricultural commodities, he said last month. The company needs dollars to import drink concentrates and buy sugar, and could generate as much of 15 percent of its foreign-exchange requirements from exporting farm products.
Exports aren’t the only route being pursued by struggling Nigerian companies. GlaxoSmithKline’s local unit is seeking to buy more items locally to help reduce the need for foreign currency. Dangote is also reducing its reliance on natural gas, the price of which is linked to the dollar despite being sourced locally from the Niger River delta. Instead, the company is using more domestically mined coal to fire its kilns.
For Erisco Foods, a Nigerian tomato-processing company, the solution was more drastic. Erisco is closing its $150 million (R1.9 billion) Lagos factory and moving to China, chief executive Eric Umeofia said in November. Management was frustrated by higher costs and a scarcity of dollars that eroded profit, the executive said.
Back at the clothing outlet, Aniagolu is pressing ahead with negotiations with buyers in Ghana for the designer shoes he hopes to export. He says he aims to cut his company’s foreign-exchange shortfall by about 30 percent by the end of the year.
“It’s a two-way strategy now to be sustainable,” he said. “The first being to tap the export market and the second to cut the import bill through local sourcing.”