Nigeria's CenBank sells $330mn to meet forex demand backlog

Nigeria's central bank recently took a significant step by selling around $330 million to address a backlog of forex demand primarily from manufacturing firms. This move comes at a time when dollar supplies from international money transfer agencies have also played a role in alleviating shortages at the parallel market. Esili Eigbe, the Director and Head of West Africa Research at Exotix, provided insights into how these measures could impact Nigeria's manufacturers and consumer goods companies. Eigbe emphasized the importance of these actions, noting that Nigeria's major consumer goods companies such as Dangote, Nigeria Breweries, Guinness, and Flour Mills require approximately $400 million per month for operations. He highlighted that these companies have been utilizing various means, including accessing dollars from secondary markets and support from parent companies abroad, to meet their forex needs. Addressing the current challenges, Eigbe stressed the need for a more liberal forex policy that allows the market to operate freely. He proposed that the central bank should consider providing direct support to industries in need of forex, rather than intervening in the market. By allowing interbank markets to function without restrictions, market participants can determine exchange rates based on demand and supply dynamics. The conversation delved into the broader economic impact of forex policies on the average citizen. Eigbe acknowledged that while certain segments of the population may experience difficulties, the focus should be on creating reforms that generate employment opportunities and foster increased consumer spending. By supporting Small and Medium Enterprises (SMEs) and facilitating job creation, the long-term benefits could extend to various sectors, including local businesses and the broader populace. Analyzing the performance of multinational companies operating in Nigeria, Eigbe highlighted the impact of high input costs following the currency devaluation in June. He cited examples of companies like Cadbury and Nestle, which faced profitability challenges due to increased input costs sourced from the secondary market post-devaluation. Despite the hurdles, some companies, like Flour Mills, have managed to navigate the environment by implementing price adjustments to maintain margins. Regarding the shift towards local sourcing, Eigbe emphasized the importance of distinguishing between sourcing locally and utilizing locally produced inputs. While many companies have made strides in sourcing materials locally, there is still a reliance on imported inputs. He underscored the need for comprehensive reforms that promote local production across various industries, thereby reducing dependency on imports. Examining specific entities within the consumer goods sector, Eigbe provided insights on companies like Cadbury and Flour Mills. He noted that while Cadbury faced challenges in the third quarter due to higher input costs, Flour Mills maintained relatively robust margins by focusing on price adjustments and efficient business management. The emphasis on profitability and strategic pricing decisions has allowed some companies to navigate the challenging market conditions. In conclusion, Eigbe's assessment shed light on the complexities within Nigeria's consumer goods sector amidst forex demand pressures. As the central bank's intervention aims to address immediate needs, the long-term success of businesses in the country will hinge on sustainable reforms, job creation, and fostering a conducive business environment.