Nigeria’s perennial foreign exchange shortage is threatening Africa’s largest economy, Bloomberg has reported.
The source reports that banks won’t honour card payments, foreign investors can’t get their money out and manufacturers are unable to import vital raw materials as production tilts towards a second contraction in four years,.
The News Agency of Nigeria reports that the scarcity of dollars at the parallel market Tuesday in Lagos forced the Naira down to N480 to a dollar.
This is just as the Pound Sterling and the Euro exchanged at N610 and N550 respectively.
Trading at the investors’ window saw the naira closing at N385.98 to a dollar as investors traded a total of $20.27 million.
The naira, however, was sold at N381 to a dollar at the official Central Bank of Nigeria (CBN) window.
The apex bank had hitherto relied on the nation’s foreign reserve and Diaspora remittances in its interventions at the foreign exchange market.
But recent data from the CBN showed that the nation’s foreign reserve fell by $544.94 million from $36.17 billion on July 1 to $35.62 billion on August 3.
FG’s reliance on exports
Following the recent oil crash and the COVID-19 pandemic outbreak, the federal government, which relies on oil exports for over 50 per cent of its revenue, has had its treasury emptied after the tap of oil money ran dry.
Bloomberg reports that the immediate future holds a little hope as Nigeria requires oil prices of $70 a barrel and daily output of 2 million barrels to balance its budget, but prices have been hovering around $40 and OPEC cuts have limited the country’s production to around 1.4 million barrels a day.
CBN has called of the weekly interbank forex sales since March as a result of an absence of foreign income.
“A lot of the members can’t access the amount of dollars they need from the banks. That is constraining business,” said Eke Ubiji, Executive Secretary of the Nigerian Association of Small and Medium Enterprises (NASME).
The International Monetary Fund (IMF) projects Nigeria’s economy will shrink by 5.4% this year, the highest in forty years.
The most recent official job figures estimated second-quarter unemployment rate at 27.1%, the highest in a decade.
Inflation escalated to 12.8% in the year through July, from 12.6% the month before as costs of imports and those of foods soared.
Banks cut down on forex
Banks, including Guaranty Trust Bank (GTB), have slashed the amount of foreign currency that customers can spend on payment cards overseas to $100 a month from $3,000.
Emeka Mgbeahuru, who runs Tropitec Limited, an importer of agricultural equipment from China and Italy with distribution links across West and Central Africa, said rules on what firms do with the dollars they receive have been changed also.
“When you source your own dollars, they won’t let you pay in cash into your account and won’t let you transfer to your suppliers,” Mgbeahuru told Bloomberg on the phone in Onitsha.
Many banks are adopting the model they deployed when faced a similar situation in 2016, which was to reduce customers’ foreign payments and wait for oil prices to recover before raising the limits.
“The challenge with dollar liquidity is an industry-wide problem,” said Bridget Oyefeso-Odusami, a spokeswoman of Stanbic IBTC Bank Plc, which cut its customers’ card spending to $500 monthly.
Ubiji said with the Naira exchanging for as high as N475 to Dollar at the parallel market, a lot of members can’t access the amount of dollars they need from the banks.
The shortage of foreign currency is forcing some companies to consider closing down, he added.
On its part, First City Monument Bank (FCMB) in an email to customers said, “Please, be informed that the monthly spending limit on your FCMB Naira Mastercard/Visa card has been reviewed further from $300 to $100.
“This means you can only spend $100 or its equivalent monthly for international transactions, available only for POS and Online transactions (ATM cash withdrawal abroad has been suspended).
“If you require a higher international spending limit, we encourage you to apply for a foreign currency card (Domiciliary Account required).”
Many banks are following a template they used when they went through a similar contraction in 2016, which was to cut customers’ foreign payments and wait for crude prices to recover before raising the limits.
The evaporation of foreign income due to falling prices of crude, Nigeria’s major source of foreign exchange, has forced the CBN to halt weekly interbank foreign-currency sales since March.
Now the effects of the dollar shortage are seeping through to the economy.
There is also little prospect of a respite any time soon as Nigeria needs oil prices of $70 per barrel and daily production of two million barrels to balance its budget, but prices hover around $40 and OPEC curbs have restricted the nation’s output to about 1.4 million barrels a day.
