Some multinational manufacturing firms operating in the country have said the shortage of foreign currencies, especially the United States dollar, is having a seriously adverse impact on their operations, thereby pushing up costs and consumer prices.
Fast-moving consumer goods maker, Unilever Nigeria Plc, and brewer, Guinness Nigeria Plc, among others, are complaining that the dollar shortage, driven by the oil price crash, is forcing local suppliers to buy hard currency at a black market premium, pushing up their operating costs and prices, and obstructing business in Africa’s biggest economy.
The naira has been under pressure since the start of the oil price rout in mid-2014. But a shortage of dollars on the official foreign exchange market has pushed the cost of the greenback to an all-time high on the parallel market, where people are having to pay twice as much as the formal rate.
The local currency sold at 330 to the dollar on the streets of Lagos, Abuja and other major cities in the country on Monday, recovering from an all-time high of 391 two weeks ago.
The widening spread between the official and parallel rates is hurting businesses that need dollars — nearly every manufacturer. And as Africa’s top crude producer suffers its worst economic downturn for 20 years, few see the currency scarcity ending before oil prices recover.
The dollar crunch is having a “seriously adverse” impact on business, the Managing Director, Unilever Nigeria Plc, Yaw Nsarkoh, told the Financial Times.
The consumer group makes goods from Lifebuoy soap to Knorr stock cubes in the country, where it has operated for more than 90 years. The Nigerian subsidiary, which is 60 per cent owned by Anglo-Dutch group, Unilever, had revenues of roughly N56bn in 2014.
The majority of Unilever Nigeria’s production is done locally, but some essential materials are not available in the country and must be imported using dollars, Nsarkoh said.
While Unilever, as a multinational, is able to access dollars through the official market run by the central bank, many local companies are unable to do so.
“The foreign exchange shortage has impacted our supply lines. We are spending much more time in order to secure the foreign exchange for certain raw materials and for some equipment we need for our plants,” he said.
Guinness Nigeria, the country’s second-biggest brewer, has similar troubles.
“For the past three months, we have been having challenges procuring the foreign exchange we need to bring in raw materials and other imported supplies we need for production,” a spokesman for the Diageo subsidiary, Sesan Sobowale, said.
The materials Guinness sources locally are more expensive, but costs cannot be passed on to consumers with less and less disposable income, he added.
Margins were “under severe pressure,” he added, pointing to half-year results released last month that showed that net income had fallen by 66 per cent to N1.2bn in the six months to December.
To conserve foreign reserves and encourage local industry in the face of the currency squeeze, the central bank last year banned the import of 41 items, including chickens, rice and steel pipes. Dollar scarcity has also meant that it is difficult for companies to import goods not on the banned list.
The South African retailer, Truworths, said last week that it was quitting Nigeria, citing import restrictions and the inability to access foreign exchange as among the reasons for its decision.
Nigeria’s foreign reserves were above $40bn just a few years ago, but the collapse in crude prices combined with mismanagement and suspected graft under the previous government have left the official reserves hovering just above $28bn.
Unilever has increased prices on some products.
“A degree of inflation determined by the parallel rate” has seeped into the product prices, Nsarkoh said, but declined to specify how many products the firm had raised prices on, adding that increases had been made across several categories.
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