Business leaders and investors in Nigeria say they are facing an unprecedented shortage of foreign exchange with the contribution of supply from the official source falling in some cases to below 23 percent as a ratio of their total FX requirement.
In a good number of cases, that number was as low as 12 percent with the blending rate rising as high as N430 to the dollar and this is now beginning to be reflected in higher prices of basic items like flour.
When asked if they have ever encountered problems sourcing the FX required for their businesses, 86 percent said yes, 9.3 percent said no, while 2.7 percent said they sometimes encountered problems accessing FX.
In terms of FX usage, 44.2 percent of the respondents indicated they sourced FX to buy raw materials, 25.6 percent needed FX to buy machines and equipment, 11.6 percent needed FX to buy spare parts, 16.3 percent needed FX to pay the school fees of their children overseas, and just 2.3 percent wanted FX for personal travel allowances (PTA).
Responding to questions around when the FX scarcity started, 60.2 percent of the respondents indicated the first quarter of 2020. Another 18.1 percent said they started having issues with getting FX earlier and 21 percent indicated the scarcity problem started in Q2 of 2020. Seventy-five percent of respondents also noted losing business transactions due to the worsening FX scarcity. Other challenges highlighted include reduction in business operations and inability to retain staff.
The survey also revealed that unofficial foreign exchange supply via non-oil export and other private remittances now account for a significant level of the requirement of Nigerian businesses and manufacturers.
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Over 200 respondents received the questionnaire and from responses, two major issues came to the fore from the high ranking of non-oil exporters as sources of FX. On one hand, it showed the paucity of FX supplies from the central bank. On the other hand, it indicated the pride of place of proceeds from non-oil exports and why the authorities should evolve ways to facilitate the expansion of FX supply from these sources.
In August 2020, the CBN had released a circular to the Bankers’ Committee on the repatriation of export proceeds and banks were instructed to submit the names of non-oil exporters who defaulted in repatriating their export proceeds.
Insights gained from the survey showed that only 23 percent of the FX secured by respondents came via the CBN/official market, another 30.4 percent from non-oil exporters while 37 percent of their forex requirement came from BDCs. Oil and gas firms met the balance of 9.7 percent.
The Nigerian economy entered into a recession in the third quarter of 2020. Earlier before this, the nation’s data agency, the National Bureau of Statistics (NBS), announced that 23 million Nigerians were unemployed.
Coupled with the inflationary pressures in the country, it then means that urgent steps must be taken to address the scarcity of forex to businesses.
Consequently, some 34 percent of affected firms said they had been forced to lay off staff, while some 32 percent said they cut salaries to remain in business on account of the forex scarcity and other pressing factors.
When asked if they have ever had to lay off staff because of FX difficulties, the majority of respondents said yes and the number of employees laid off, according to the respondents, ranged from 2 to 50 per firm.
In the last few months, the worsening FX scarcity has increased the arbitrage opportunity in the forex market from N54.04 in January 2020 to N91.74 in November 2020.
In January this year, the average CBN’s official rate was N306.96/$ while BDC’s was N361/$. Fast forward to November 2020, the CBN’s official rate depreciated to N381/$ while it was N472.74/$ at the BDC/parallel market.
The survey was conducted by BusinessDay’s Research and Intelligence Unit (BRIU), with a special focus on the sources and utilisation of forex, and was administered in the first week of December 2020 to ascertain the sources and utilisation as well as the ease of access to FX for Nigerian businesses.
BRIU adopted the expert sampling method to select the respondents, who were mainly c-suite executives. They included CEOs, CFOs, senior reservoir geologists, directors, business managers, among others. In terms of gender, 80.9 percent of the respondents were males while 19.1 percent were females, and the minimum years each of the respondents has been in management ranged from 1 to 24 years.
The major sectors of the Nigerian economy were well represented in the survey including food and beverages, FCMG, retail, agribusiness, oil and gas, media, food packaging, beauty and cosmetics, financial services, among others.
