Business
Economy groans under dollar scarcity …MAN, LCCI, aviation lament
BY EMEKA EJERE
Critical sectors of Nigeria’s economy are having their fair shares of the debilitating effects of continuous depreciation of the naira to the dollar, with no likelihood of reversing anytime soon.
Rather, the rapid decline has seen financial analysts and economists forecasting that the naira could fall to N1000 to the dollar if urgent steps are not taken.
Pressure on foreign reserves of Africa’s largest crude producer, which has been depleting in recent times, despite higher oil prices forced the Central Bank of Nigeria (CBN) to cut down on dollar sales, thereby creating scarcity of the greenback on the market.
The CBN had devalued the naira several times in the last couple of years, as it succumbed to demand pressure amid worsening scarcity of the greenback. According to the International Monetary Fund (IMF), the CBN has a huge backlog of unmet dollar demand from investors.
Defending the naira
However, as part of its longer-term forex strategy to save the naira, the CBN announced a rebate scheme to raise $200 billion in earnings from non-oil proceeds over the next three-to-five years. The intent is to incentivise exporters to repatriate and then sell dollars into the local market. There was also Naira4Dollar Scheme with similar target.
Other moves by the apex bank targeted at making the local currency stronger against the greenback and other global currencies include; stopping the sale of FX to Bureau De Change (BDC) operators in 2021, selling only to commercial banks, an exercise it said will stop by the end of 2022.
Before then, the banking sector regulator had banned Aboki FX, an online platform which hitherto published the unofficial rate of the naira to other currencies.
But the dollar scarcity has defied all these measures, with the impact hitting hard across the sectors of the economy.
Meanwhile, the naira recorded a marginal gain against the U.S. dollar at the official forex market on Friday, after the currency rate remained unchanged in the previous two consecutive sessions of the spot market, data posted at the FMDQ, website where forex is traded officially, showed.
The rate implies a slight appreciation of 0.08 per cent from N429.38 to a dollar it traded on Thursday and Wednesday. A total of $50.22 million was traded in foreign exchange at the official 1&E window on Friday.
However, the precarious situation at the unauthorised market, which many see as a better reflection of the reality, still exists. According to Premium Times, dealers at the Uyo and Abuja black market on Friday said they bought the dollar at N680.00 and sold within the range of N683.00 and N685.00, the same range it hovered within the previous three market days.
“The market has been dicey this week because the EFCC paraded some dealers in Port Harcourt and even in Abuja this week. So we are all trading with caution,” a currency dealer in Uyo who does not want his name mentioned for fear of being hounded was quoted as saying.
Dilemma for manufacturers
Manufacturers appear worse hit by the prevailing unfavourable forex crisis. The reason is not far-fetched. The importation of productive inputs that are not locally available by manufacturers is done in dollars, and it has been extremely difficult for manufacturers to access dollars from commercial banks to do business, findings have shown.
At a recent Annual General Meeting (AGM) of Manufacturers Association of Nigeria (MAN), its president, Engr. Mansur Ahmed, lamented that over 40 per cent of manufacturers could not get dollars to import key inputs, spare parts and machines for production.
He said the forex guidelines and policies have a significant impact on the sector. “Now, forex access in the sector is given based on some metrics, which include type of company, the amount being requested, what you are spending it on and sources of the forex, among other things,” Mansur stated.
“The continued free fall of the naira has compounded the woes of local manufacturers, as the cost of importation of raw materials and machinery has skyrocketed, for instance, with those in the Small and Medium Enterprise (SME) segment evidently worse hit.”
According to Ahmed, some of them, including large manufacturers, who are unable to bear the burden of high operational cost, have been forced to increase the unit price of their products in order to remain in business.
“Even at that, the declining purchasing power of most Nigerian consumers, caused by the crashing naira value and other challenges in the economy, has forced many consumers to resist any price increase by manufacturers”, he said.
“As a result, local manufacturers appear to have been boxed to a corner, with little room to maneuver, as inventory of unsold goods piles up, with attendant hit on their profit margin and of course. competitiveness.”
Doom for real sector
The Deputy President, Lagos Chamber of Commerce & Industry (LCCI), Gabriel Idahosa, lamented that the naira crisis spells doom for the real sector. He believes that real sector operators will experience aggravated levels of what they are in already, such as increased losses, scaling down of operations, suspension of operations, and cutting down of staff among others.
According to Idahosa, this will lead to further decline in production at enterprise and national levels.
“As a result, the unemployment situation and related social/security issues will escalate, as a growing number of able-bodied Nigerians willing and unable to find any viable means of earning livable income may turn to crime,” he said.
The LCCI chief further lamented that the ability of operators in the real sector to do medium-and long-term planning is seriously hampered in a rapidly inflationary environment. He added that the steady decline in Foreign Direct Investment (FDI) seen in recent times will also continue at a faster rate as confidence in the local currency drops.
Gloomy for aviation
The aviation sector is not left out in the headwinds. While both local and foreign airlines grapple with the skyrocketing cost of Jet A1, the latter is facing a bigger problem of trapped funds that cannot be repatriated to their head offices abroad due to acute dollar shortage.
This has seen the airlines adopting a number of tough measures to remain afloat. For instance, Emirates Airlines announced in a statement on Thursday (August 18) that its flight operations in Nigeria would be suspended from September 1, 2022.
In its statement, the carrier stated that it “has tried every avenue to address our ongoing challenges in repatriating funds from Nigeria, and we have made considerable efforts to initiate dialogue with the relevant authorities for their urgent intervention to help find a viable solution.”
It added, “Regrettably there has been no progress. Therefore, Emirates has taken the difficult decision to suspend all flights to and from Nigeria, effective September 1, 2022, to limit further losses and impact on our operational costs that continue to accumulate in the market.”
President of Association of Foreign Airlines and Representatives in Nigeria, Kingsley Nwokeoma, in his reaction, said more international carriers would join Emirates Airlines soon if nothing was done to address their concerns.
He said, “This is just the beginning. It is over $1 billion dollars that is being held and they (foreign airlines) cannot repatriate it. If other countries are like Nigeria, there will not be any industry because this money is used for maintenance. Even the money used to pay their staff in Nigeria is coming from other climes.
“Aviation industry is all about 100 per cent safety. If there is no money, safety will not be 100 per cent guaranteed. So, it is going to continue. Emirates has kick-started it and I’m sure that you are aware that British Airways has cut flights into Nigeria and that is how it is going to start.
“Just like Emirates did, they will first of all cut their flight into Nigeria and they will look at it holistically again and if it is not working out, then it’s not working out. This did not start today. It started over the years and the government is not doing anything.”
Also, the International Air Transport Association Regional Vice President, Kamil Alawadhi, said, “IATA is disappointed that the amount of airline money blocked from repatriation by the Nigerian government grew to $464 million in July. This is airline money and its repatriation is protected by international agreements in which Nigeria participates.
IATA’s many warnings that failure to restore timely repatriation will hurt Nigeria with reduced air connectivity are proving true with the withdrawal of Emirates from the market. Airlines cannot be expected to fly if they cannot realize the revenue from ticket sales.”