Nigeria’s Improved Dollar Supply Helps Firms Settle Overseas Debt

MTN Nigeria, the nation’s biggest mobile operator, “utilized the improved liquidity in the foreign exchange market” to reduce letters of credit obligations by 41.6% to $243.4 million from $416.6 million in December, in a bid to curb losses, Chief Financial Officer Modupe Kadiri said at investor conference call last week.

The Central Bank of Nigeria has since the beginning of this year introduced measures to improve liquidity, including raising its benchmark rate 600 basis points to attract capital inflows and and dumping the currency’s peg to allow the market to determine the naira’s exchange rate. This was after years of unorthodox currency management deterred investors and caused a scarcity of the greenback.

“Portfolio flows have responded positively to reforms with increased FX turnover,” Tatonga Rusike, sub-Saharan Africa economist at Bank of America Corp., said in an investment note. “The average daily FX turnover has more than doubled from 2023 lows.”

Dollar liquidity jumped 90% to $160.8 million on Tuesday from a day earlier, Chapel Hill Denham said in emailed note on Wednesday. The central bank is also selling dollars to money traders to boost distribution to retail users.

BUA Foods, the country’s biggest food and beverage company, took advantage of the improved dollar liquidity to prune debts by about 6% in the first quarter of this year, Managing Director Ayodele Abioye said. “Dollar availability will no doubt have positive impact going forward and we are optimistic of better performance for half-year 2024,” he said.

Similarly, Cadbury Nigeria has been able to access all its dollar needs from the official market since the beginning of the year, Finance Director Ogaga Ologe said by phone. “Our local-currency cash has dropped because of us being able to buy foreign exchange in advance for the materials we need,” he said.

“The increased dollar liquidity is providing a respite for companies to pay down debts and cushion the effect of the devaluation,” Adetilewa Adebajo, economist and chief executive at Lagos-based CFG Advisory, said by phone.

While liquidity has improved, it has to be sustained for the next year to support the turnaround companies desire, according to Adebajo.

“Authorities need to make sure real rates are positive, that the interest rate is matching inflation and fiscal responsibility in terms of government spending is in check,” he said.