Dangote leads Nigeria dollar chase
Nigeria’s hard-currency shortage is forcing companies to get creative in their hunt for dollars. For many, including Dangote Cement Plc, that’s meant a bigger focus on exports.
The continent’s largest producer of the building material has about 1,500 trucks hauling cement across the border to Benin, Ghana and Chad to access hard currency, Chief Executive Officer Onne Van Der Weijde said in an interview. Diageo Plc’s Nigerian unit said it was considering shipping products including Guinness stout to South Africa, while imported clothing entrepreneur Chris Aniagolu is talking to local factories about bulk purchases of shoes he’ll export to other West African countries.
“It’s time to take some bold steps,” Aniagolu, 45, said in an interview at one of his wholesale outlets in Lagos, glancing at the empty shelves and racks. His company can’t get enough dollars to replenish stock from China, Italy and Turkey, and when the first customer of the day wants to order 100 pairs of jeans, he has to make do with half that amount.
Companies in Nigeria are struggling after the decline in oil prices cut government revenue and caused a shortage of foreign currency, causing the economy to shrink last year for the first time since 1991. The central bank has also blocked importers of 41 selected goods including textiles from the interbank foreign-currency market. The lack of dollars has forced businesses like Aniagolu’s to buy foreign currency on the black market at about 25 percent more than the official rate.
The dollar squeeze has been exacerbated by the central bank opting to keep a tight grip on the naira’s value. Investors say the bank has held it at around 315 against the dollar on the official market since August, even as the black market rate tumbled to 380.
It makes sense that companies are trying to export more to reduce their dollar needs from the interbank foreign exchange market, Sugun Ajayi-Kadir, director general of Manufacturers Association of Nigeria, said by phone from Lagos.
“It’s a difficult situation where you have nothing to export, or you can export very little, whereas your dollar need is big,” he said.
Exports are a helpful source of dollars for Dangote Cement, controlled by Africa’s richest man, Aliko Dangote, as it struggles to access foreign exchange needed to pay for imported raw materials and equipment, Van Der Weijde said. Dangote’s struggling to maintain its plants, he said, and the company has signaled expansion plans may take longer because of the foreign-exchange shortage.
“We’re muddling through, but it’s painful and you can’t do half of what you want to do,” the CEO said in an interview. “To see that your plants aren’t getting the maintenance they should is painful. That’s because of foreign exchange.”
Guinness Nigeria Plc, the country’s second-biggest brewer, said in September it planned to increase exports to improve sales and generate more foreign exchange. The Diageo unit was looking at selling Guinness stout and the herbal drink Orijin in South Africa, CEO Peter Ndegwa said.
Soft-drinks maker Seven-Up Bottling Co., the producer of brands including Pepsi and Mountain Dew, also wants to export more to neighboring countries to access hard currency, according to CEO Sunil Sawhney.
The Lagos-based manufacturer also wants to try its hand at trading agricultural commodities, he said in an interview last month. The company needs dollars to import drink concentrates and buy sugar, and could generate as much of 15 percent of its foreign-exchange requirements from exporting farm products. The company is still formulating the details of the plan and evaluating specific commodities, he said.
Exports aren’t the only route being pursued by struggling Nigerian companies. GlaxoSmithKline Plc’s local unit is seeking to buy more items locally to help reduce the need for foreign currency. Dangote is also reducing its reliance on natural gas, the price of which is linked to the dollar despite being sourced locally from the Niger River delta. Instead, the company is using more domestically mined coal to fire its kilns.
Moving to China
For Erisco Foods Ltd., a Nigerian tomato-processing company, the solution was more drastic. Erisco is closing its $150 million Lagos factory and moving to China, CEO Eric Umeofia said in November. Management was frustrated by higher costs and a scarcity of dollars that eroded profit, the executive said.
Back at the clothing outlet, Aniagolu is pressing ahead with negotiations with buyers in Ghana for the designer shoes he hopes to export. He says he aims to cut his company’s foreign-exchange shortfall by about 30 percent by the end of the year.
“It’s a two-way strategy now to be sustainable,” he said. “The first being to tap the export market and the second to cut the import bill through local sourcing.”