Nigerian businesses are struggling to get hold of foreign exchange even after the central bank devalued the currency in June to try and attract investment from abroad, according to the West African country’s main manufacturers’ lobby group.
Many factory owners can still only access the hard-currency they need for importing equipment and raw materials on the black market, where dollars are more expensive than on the official one, said Frank Jacobs, president of the Manufacturers Association of Nigeria.
“I don’t think there are any more dollars in the system since the devaluation,” he said in an interview in Lagos, the commercial capital, on Aug. 25. “Not much has happened so far.”
Central bank Governor Godwin Emefiele let the naira float on June 20 after a peg he imposed in early 2015 caused foreign investors to flee, starved local businesses of foreign exchange and sent the economy to the brink of recession. While the currency has since weakened 35 percent to 315.25 against the dollar on the official market, it trades at about 410 on the street and foreigners have been reluctant to start buying naira stocks and bonds.
The central bank’s decision last week to make banks allocate at least 60 percent of the foreign exchange they sell to manufacturers and importers of raw materials was “excellent,” said Jacobs, who is chairman of Jacobs Wines Ltd., which is based in southeastern Nigeria and makes wine and brandy from pineapples.
Jacobs is confident that the government will also ease a ban on importers of goods ranging from glass to toothpicks from accessing foreign exchange from banks. He has met Vice President Yemi Osinbajo and spoke to Emefiele last week to persuade them to reduce a list of 41 prohibited items that was announced in June 2015. The bans have shut factories and cut thousands of jobs, Jacobs said.
“We are making progress” in talks with officials, he said. “I’m very hopeful that before the end of the year they’ll say something about the 41 items. Around 60 of our factories have closed in the last year. And we’re blaming it on the list of 41 items and the high cost of foreign-exchange.”
Emefiele, the former head of Zenith Bank Plc who become governor in June 2014, introduced the rules as part of a range of capital controls to protect the naira as the price of oil, which accounts for 90 percent of Nigeria’s export earnings and the bulk of government revenue, crashed.
He argued that, as well as protecting Nigeria’s foreign reserves, the restrictions would boost manufacturers by curbing demand for imports and forcing Nigerians to buy local products. Instead, the sector went in to recession last year and contracted 7 percent in the first quarter of 2016.
The 41 items include “essential raw materials” that factories can only buy from abroad, Jacobs said. “Our members affected by the ban are going to the parallel currency market. It’s the only place they can buy dollars from.”
Investors have blamed the central bank’s policies for afflicting the wider economy, which shrank 0.4 percent in the first quarter. Output dropped in the second quarter too, according to all 13 analysts surveyed by Bloomberg ahead of the statistics office’s release of the data on Wednesday. The median estimate is for a contraction of 1.6 percent.
Jacobs said Nigeria’s manufacturers were further hampered by power cuts. They’ve got worse in the past year, he said, despite President Muhammadu Buhari’s pledge to double electricity generation by 2019. Nigeria, with 180 million people, produces around one-tenth of the electricity of South Africa, which has a population of 55 million. Power plants have been hit as militant attacks on pipelines reduce their gas supplies.
“Power output today is a far cry from what we had in 2014,” Jacobs said. “It’s dropped significantly.”