In Africa’s biggest economy, the hunt for dollars could threaten the survival of many manufacturers, even when they have a lot of nairas.

Central Bank of Nigeria has been rationing foreign exchange in efforts to protect the local currency amid the crash in oil prices and coronavirus outbreak. It only resumed weekly dollar sales of $100 million for small businesses and expenses such as tuition late in April.

That means importing raw materials has been difficult for companies such as Duro Kuteyi’s Spectra Industries Ltd., a Lagos-based processor of commodities including soybean, sorghum and cocoa. The 68-year-old chief executive officer applied for credit of 200 million naira ($516,649) to import processing and packaging machines for a new production line before the Covid-19 crisis. As of Thursday, he has only been able to get $5,000 in hard currency from his bank.

His bankers will let him know when they have more dollars for him, Kuteyi, who is also head of the Association of Food and Agro Processors in Nigeria, said by phone. However, he may need to apply for additional credit to be able to import the same machines because the value of the dollar has gone up.

Foreign investors in Nigeria are also lining up for greenback to take their money out of the country and some lenders have reduced how much dollars customers can spend monthly for international transactions on their naira-denominated bank cards.

Local Production

Still, Governor Godwin Emefiele said on Thursday there isn’t a shortage of hard currency and sales will resume to bureaux de change when the coronavirus lockdown has eased sufficiently. Also, the central bank sees no rationale for seeking foreign currency when global manufacturing is shut down and the crisis presents a good opportunity for Nigeria’s economy to diversify and focus on producing locally, he said.

Supporting local production has often been touted as reason to limit dollar access in a country that imports fuel, food and raw material for factories. However, Nigeria relies on crude exports for about 90% of foreign-exchange earnings and the price plunge has led to hard-currency inflows drying up. That put pressure on the naira. While the central bank devalued the local unit in March and increased the rate at which investors and exporters could purchase the greenback, the naira still trades at about 20% weaker in the parallel market. The local unit weakened 0.06% to 387.50 per dollar on the interbank market as of 9:32 a.m. in Lagos on Friday.

When the oil crash in 2014 caused dollar shortages, policy makers introduced capital controls and pegged the naira to try curb inflation. However, price growth surged as businesses struggled to pay foreign suppliers and the CBN then introduced multiple exchange rates -- a lynchpin of President Muhammadu Buhari’s economic policy.

Past Steps

Analysts such as Adedayo Ademuwagun of Songhai Advisory LPP in Lagos said the central bank could repeat some of these steps. While the policy climate is different, “the mindset in the government has barely changed and so the tendency is to repeat past steps,” he said.

The $3.4 billion emergency funding secured from the International Monetary Fund will boost foreign-exchange reserves in the short term, allowing the central bank to maintain its currency regime.

While the government suggested to the IMF “that exchange-rate unification would be on the cards, the CBN’s default position remains to delay further changes to its foreign-exchange regime, including official devaluations, for as long as possible,” said Malte Liewerscheidt, vice president of Teneo Intelligence.

It’s no longer possible for the central bank to lure investors to buy its high-yielding OMO securities, with the current climate where traders are withdrawing funds from emerging and frontier markets. In the meantime, “they will try to limit forex sales, and it depends on how long this economic crisis lasts and on the oil price meeting target,” Liewerscheidt said.

Pharmaceutical Imports

Dollar scarcity and a weakening naira are already adding to inflation in a country that imports all major inputs used by pharmaceutical firms. Manufacturers can’t open letters of credit as dwindling oil receipts and the lack of intervention by the central bank pushed international banks to withdraw credit relationships with local lenders, said Fidelis Ayebae, the chief executive officer of Fidson Healthcare Plc.

“You now have a situation where nobody is holding letters of credit, no manufacturer is getting anything from their suppliers abroad because even the ones that we owe, we are not able to pay,” said Ayebae, who also heads the 180-member pharmaceutical group of Nigeria’s manufacturers association. “Some companies may shut 45 days from now if they are not able to import.”

The administrative costs of the drugmaker soared by at least 22% due to the current headwinds and it may be forced to stop manufacturing from July if dollar illiquidity persists. While his company got 2.5 billion naira from the central bank’s coronavirus intervention fund, he has only received $80,000.

“I need dollar equivalent of 2.5 billion naira,” he said. “If I get $5 million today, I will be a very happy man.”

What Bloomberg’s Economist Says

“The exchange restrictions introduced by CBN create uncertainty and distort decision making in the economy, adding to the downside risks to growth.”

Bloomberg