Nigeria’s foreign-currency shortage is squeezing the life out of Africa’s biggest economy.
Banks won’t honour card payments, foreign investors can’t get their money out and manufacturers are unable to import vital raw materials as output hurtles toward a second contraction in four years.
Dependent on oil exports for half of its revenue, the Nigerian government’s coffers have emptied after crude prices plunged in the wake of the coronavirus pandemic. There’s little prospect of a respite any time soon: it needs oil prices of $70 per barrel and production of 2 million barrels a day to balance its budget, but prices are hovering around $40 and OPEC curbs have restricted the nation’s output to about 1.4 million barrels a day.
The evaporation of foreign income forced the central bank to halt weekly interbank foreign-currency sales since March. Now the effects of the dollar shortage are seeping through to the economy.
“A lot of the members can’t access the amount of dollars they need from the banks,” said Eke Ubiji, executive secretary of the Nigerian Association of Small and Medium Enterprises. “That is constraining business.”
The International Monetary Fund predicts Nigeria’s economy will contract by 5.4% this year, the most in four decades. The latest official job figures put the second-quarter unemployment rate at 27.1%, the highest in a decade.
Lenders including Guaranty Trust Bank Plc, Nigeria’s biggest by market value, have cut the amount of foreign currency customers can spend on payment cards abroad to $100 a month from $3,000. Rules on what companies do with the dollars they receive have also been changed, said Emeka Mgbeahuru, who runs Tropitec Ltd., an importer of agricultural equipment from Italy and China with distribution links across west and central Africa.
“When you source your own dollars, they won’t let you pay in cash into your account and won’t let you transfer to your suppliers,” Mgbeahuru said by phone from the southeastern commercial hub of Onitsha.
Many banks are following a template they used when they went through a similar contraction in 2016, which was to cut customers’ foreign payments and wait for crude prices to recover before raising the limits.
Central Bank of Nigeria spokesman Isaac Okorafor didn’t respond to a call and messages seeking comment.
“The challenge with dollar liquidity is an industry-wide problem,” said Bridget Oyefeso-Odusami, a spokeswoman of Stanbic IBTC Bank Plc, which cut its customers’ card spending to $500 monthly.
The shortage of foreign currency is forcing some companies to consider closing down, said Ubiji.
“If that happens, it has a ripple effect, which is loss of jobs,” he said. “We wish the situation changes for the better.”