Nigeria’s central bank told commercial lenders at a meeting last week that it plans to cut dollar supplies to the market because reserves are running short, according to a person who attended the talks.
Deputy Governor Sarah Alade told treasurers of the country’s banks at the meeting in Lagos on Nov. 13 that they should prepare for current exchange-rate policies to remain in place for longer and that there are no plans to devalue the naira or to loosen currency-trading restrictions, according to the person, who asked not to be identified as the talks were private. The central bank will only sell as many dollars to banks or currency dealers as it receives from oil exports, which amounts to about $1 billion a month, the person said.
Alade and Ibrahim Mu’azu, a spokesman for the Abuja-based central bank, didn’t answer calls to their mobile phones or immediately respond to text messages and e-mails seeking comment.
Nigeria, Africa’s biggest oil producer which derives 90 percent of export earnings from the commodity, is struggling to cope with an almost 60 percent plunge in Brent crude prices since June 2014 to below $45 a barrel. Central bank Governor Godwin Emefiele, backed by President Muhammadu Buhari, has kept the naira from weakening by restricting how much foreign- exchange banks and their customers can buy in the interbank market. Since March, the naira has been all but fixed at 198 to 199 per dollar even as central bankers in other major oil- selling nations such as Russia, Colombia and Kazakhstan have let their currencies fall.
While Nigeria’s foreign reserves have dropped 19 percent since the end of June 2014, they increased 0.5 percent in the past month to $30.3 billion as the central bank sold fewer dollars.
Emefiele’s policies are hurting the economy, which is growing at its slowest pace this century, by deterring foreign investment and preventing businesses from importing all the goods they need to operate, according to Moody’s Investors Service. Banks are struggling to find enough dollars to meet existing obligations to customers and some have to rely on foreign loans, according to the ratings company.
“It’s starting to affect the banking sector,” Douglas Rowlings, an analyst at Moody’s, said in an interview in Lagos on Nov. 18. “Many businesses are drawing on their letters of credit to pay overseas suppliers. The banks, to meet these obligations, then have to use overseas loans. It was initially a corporate problem, but it is starting to increase vulnerabilities for the banking sector.”
Economic growth slowed to 2.8 percent on an annualized basis in the third quarter from 6.2 percent a year earlier. The rate will slump to 3.9 percent in 2015, the slowest pace since 1999, according to the median estimate of 10 economists surveyed by Bloomberg.
Charles Soludo, who led the central bank from 2004 to 2009, said on Thursday that Emefiele should revert to a more flexible exchange-rate regime and that the rationing of dollars was hurting manufacturers.
“It creates rent-seekers in the foreign exchange market, while small and medium enterprises are dying,” he said at a conference in Lagos.
Soludo’s successor, Emir Muhammadu Sanusi II, also criticized the central bank, saying last month that the current governor is “in denial” over the naira.
Companies have to wait as long as two weeks to obtain dollars, said Mark Rutten, finance director of Nigerian Breweries Plc, the nation’s biggest brewer that’s 53 percent owned by Heineken NV. The company has been in discussions with the central bank about the issue, he said.
“Is it getting more difficult than three months ago?” Rutten said in a presentation to investors in Lagos on Thursday. “Yes. We are making this point that it’s getting more difficult to source dollars,” he said.
Emefiele has consistently said that the naira is “appropriately priced” and that his measures are aimed at promoting local production and stemming inflation in a country that imports almost all its manufactured goods.
His stance is “driven by political considerations as much as economic” ones because Buhari, who came to power in May, doesn’t want price increases to “lose him much of his current goodwill,” analysts at BMI Research said in a Nov. 18 note. The currency could fall to 225 per dollar next year because the central bank will be forced into an “inevitable” devaluation as the economy worsens, the analysts said.
The naira rose 0.4 percent to 197 per dollar as of 6:32 p.m. in Lagos. The forwards market suggests the currency will weaken 7.9 percent to 212.5in three months and 25 percent to 247 in a year.
– Bloomberg [Paul Wallace with help from Emeka Onu]