Naira and Dollar

By AYOOLA OLAOLUWA

Multinational companies operating in Nigeria are adopting several desperate measures to circumvent the challenge of foreign exchange scarcity in the country, Business Hallmark findings can reveal.
Businesses operating in the country, especially since the beginning of this year, have found it hard to obtain foreign exchange owing to several factors, including slowing economic growth, slump in oil prices, Covid19 consequences, restrictions on forex access by the Central Bank of Nigeria (CBN) and fall in Diaspora remittances, among many others.
According to BH checks, the price of a barrel of crude oil has remained below the $50 mark since the beginning of 2020, the worst crash since mid-2014, owing largely to the effects of the novel Covid19 pandemic.
As revenue from crude oil make up 70 percent of government income and 90 percent of foreign currency earnings, the shock was massive. While the government could not execute many projects and has to resort to obtaining foreign loans, the fall in forex inflow also hit businesses operating in the country leading to high production cost and inflation.
Asides falling crude revenues, the country in 2020, recorded the lowest Diaspora remittances from abroad since 2008 as the lockdown and restrictions put in place by foreign governments to curtail the spread of coronavirus affected the income of most Nigerians living abroad.
In 2019, total foreign remittances into Nigeria were $23 billion, helping the CBN, which also relies on forex inflows from remittances to improve on its balance of payment, to boost the naira.
However, a second-quarter data compiled by the CBN obtained by BH showed that remittances fell to $3.3 billion in the second quarter of 2020, lower than the average of $5.8 billion per quarter remitted to the country in previous quarters, as most Nigerians either lost their jobs or got pay-outs during the lockdown. In the 4th quarter of 2019 and 2018, Nigerians in Diaspora remitted $5.9 billion and $6.24 billion respectively.
While the inflow is expected to rise in December as Nigerians abroad send money home to their friends and families to celebrate the Yuletide, the figure is expected to be below past remittances. So far, around $18bn has been remitted.
Owing to the scarcity of forex and the high demand for it, the local currency has lost around 25 percent value between February and December 2020. On Thursday, December 10, a dollar exchange for N383.0351 at the official market, while it changed hands at the parallel market at the rate of N475/N480.
Bothered by the depletion of the nation’s foreign reserves and its negative impacts on the economy, the CBN resorted to rationing to conserve the dwindling reserves. According to report by CBN on its website on December 10, 2020 a 30-day average of the nation’s foreign reserve stand at $35.050bn, or only seven months’ import bill.
Among the measures put in place by the CBN to protect the naira include exchange-rate unification, and the introduction of a product price verification mechanism, which helps prevent overpricing or mispricing of imported goods and services.
According to the CBN, this measure will ensure prudent use of the scarce foreign exchange resources and eliminate incidences of over-invoicing, transfer pricing, double handling charges and avoidable costs that are ultimately passed to the average Nigerian consumers by businesses.
Earlier, the apex bank had excluded importers of 43 goods and services from accessing the official foreign exchange markets in order to encourage local production of the items. Several investment bankers told our Correspondent that there is over $9 billion backlog of unmet dollar demand.
“While manufacturers are not getting the required forex to purchase raw materials and machinery needed for production, foreign investors have not been able to repatriate the returns on their investments abroad. They have to queue up for CBN to get their limited ration, which in most cases are meager and largely unmet”, declared a banker who did not want his name in print.
Meanwhile, in an apparent move to overcome the lingering forex scarcity, parent owners of multinational companies are deploying trapped funds to buying up shares and increasing their stakes in Nigerian units.
BH findings revealed that many foreign majority-owned stocks have increased their stakes in Nigerian units, while utilising trapped funds. One of such companies is Excelsior Shipping Company Plc, the majority shareholder in Flour Mills Nigeria Plc.
According to available data, Excelsior mopped up a total of 7.03 million new shares in Flour Mills valued at N147 million between May and July 2020.
Another parent company that has increased its stakes in its Nigerian unit is Nestlé S.A, Switzerland. Within two weeks, Nestlé S.A. acquired 666,596 additional shares of its Nigerian subsidiary, worth almost a billion naira.
According to notifications issued between November 11 and 27 by the Company’s Secretary, Mr. Bode Ayeku, the parent company purchased 214,924 additional shares of Nestle Nigeria worth N300.89 million, at a price of N1,400.00 per share on November 10.
Seven days later, Nestle S.A. purchased additional 331,045 shares worth N463.46 million, at a price of N1,400.00 per share.
It followed up on November 20 with the purchase of 102,690 shares worth N143.77 million, at a price of N1,400.00 per share.
And on November 25th and 27, the company completed the buying spree with additional 17,937 shares worth N24.82 million, at a price of N1,384.00 per share, bringing the total shares of Nestlé Nigeria Plc purchased by Nestlé S.A to 666,596 at the value of N932.95 million.
In the same vein, the majority shareholder of Unilever Nigeria Plc, Unilever Overseas Holdings B.V, has increased its stake in the Nigerian company. Unilever Overseas Holdings B.V recently purchased 84 million new shares valued at N1.04 billion. The latest acquisition substantially raised Unilever Overseas Holdings’ stake in its Nigerian subsidiary.
Prior to the acquisition of additional share, Unilever Overseas Holdings B.V was the single largest investor in the company controlling 70% of the company’s total shareholding.
Also on a buying spree is Heineken Brouwerijen B.V, the parent owner of Nigerian Breweries (NB) Plc. Available data suggests that Heineken coughed out the sum of N284.5 million between June and August 2020 to purchase 7.91 million new shares of Nigerian Breweries.
The single largest domestic stake in the widely Nigerian Breweries’ shareholding is 0.44 per cent held by Odutola Holdings Limited.
Aside the parent owners of Nigerians subsidiaries who are engaged in the business of buying more stakes in local units, are foreign investors trapped in Nigeria’s debt market as a result of forex lockup.
BH reliably gathered that some bond holders who sold local-currency securities in March after their maturity have been unable to repatriate their proceeds several months after.
An analyst with EFG Hermes, Simon Kitchen, said recently in a note to investors said that holders of Nigerian bonds and equities may have as much as $2.5 billion trapped in the country.
It was learnt that the situation is so bad that investors could not even buy forex at the Investors and Exporters Window. An equity analyst with Stanbic IBTC, Akinbamidele Akintola, disclosed that dollar trading at the I&E Market, which was between $300 million to $400 million daily when it started is now $20 million a day on average.
“Since March 20 when the CBN stopped dollar supply, everyone is a buyer of dollars but there is hardly any seller. Some central bank debt auctions in late March and early April recorded zero bids across certain tenors. Subscription levels revived again after foreigners started reinvesting stranded money”, Akintola noted.
Also speaking, the Head of Africa strategy at Standard Chartered Plc, Samir Gadio, said trapped investors are reinvesting funds in high-yielding central bank bills while they await enough liquidity to get their funds out.
Market analysts who spoke to our Correspondent on the development maintained that the foreign owners might be taking advantage of the foreign exchange scarcity and the resultant devaluation of naira, which is forcing many of them to undertake a buyout of their Nigerian subsidiaries.
“Attractive valuation of Nigerian equities and the devaluation of naira have made Nigerian stocks soft targets for foreign investors, particularly parent owners of Nigerian companies”, explained Tayo Adeleke, a stockbroker.
An equity analyst at CSL Stockbrokers, Mr. Gbolahan Ologunro, said the moves were futuristic as foreign shareholders normally have a long-time horizon when investing.
“What they are doing is very simple. They pick up these stocks at a very attractive rate hoping that as we begin to see a gradual improvement in economic activities, we continue to see mild improvement in the earnings of these companies,” Ologunro noted.
Also speaking, a financial analyst, Mr. Segun Olakoyenikan, attributed the ongoing acquisition of new shares by majority shareholders to foreign exchange scarcity currently witnessed in the country, which he argued has made the repatriation of dividends more difficult for foreign investors.
“Instead of allowing the money to lie idle, they prefer to take positions hoping that things will rebound in the nearest future,” Olakoyenikan said.
However, an equity analyst at United Capital, Mr. Yinka Ademuwagun, said the new purchases could be a strategy by the companies to support the falling share price in the market by injecting cash into it to keep price elevated and prevent it from falling below the share price support level.