MTN, BUA FOODS, CADBURY CLEAR OVERSEAS DEBTS AS DOLLAR SUPPLY RISES
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According to Bloomberg, Nigerian businesses have begun to pay off their outstanding debt in US dollars.
This comes after the Central Bank of Nigeria recently instituted changes that increased market liquidity in the foreign exchange market in Nigeria.
Major Nigerian businesses like MTN Nigeria Communications Plc, BUA Foods Plc, and the Nigerian division of Cadbury Schweppes Overseas Limited have reportedly certified that they may obtain dollars in order to meet their foreign exchange requirements, according to Bloomberg’s findings.
The report states that this represents a significant change from the prior situation, in which their inability to settle payments to international suppliers or repatriate profits was hampered by the lack of US dollars.
According to an email statement from Chapel Hill Denham on Wednesday, dollar liquidity increased by 90% to $160.8 million on Tuesday over the prior day, according to Bloomberg.
To increase distribution to retail customers, the central bank is now selling dollars to money dealers.
On Tuesday, the naira fell 1.2% to 1,416 against the dollar in spite of the extra liquidity.
MTN Nigeria, the country’s largest mobile operator, capitalised on the enhanced liquidity within the foreign exchange market.
Chief Financial Officer, Modupe Kadiri, revealed during an investors conference call last week that MTN Nigeria managed to decrease its letters of credit obligations by 41.6%, reducing them from $416.6 million in December to $243.4 million.
Taking advantage of the enhanced dollar liquidity, BUA Foods, Nigeria’s largest food and beverage company, reduced its debts by approximately 6% in the first quarter of this year, according to Managing Director Ayodele Abioye.
He expressed optimism about the future, stating, “Dollar availability will no doubt have a positive impact going forward and we are optimistic of better performance for half-year 2024,” he said.
Likewise, Cadbury Nigeria has been able to access all its dollar needs from the official market since the start of the year, Finance Director Ogaga Ologe told Bloomberg 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 in a phone conversation with Bloomberg.
debajo emphasised that while liquidity has improved, it must be sustained over the next year to facilitate the desired turnaround for companies.
“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.
Bloomberg highlights that the Central Bank of Nigeria has implemented several measures since the start of the year to enhance liquidity within the economy.
These measures include increasing its benchmark rate by 600 basis points to incentivise capital inflows and removing the currency’s peg, allowing the market to determine the exchange rate of the naira.
The financial news publication said these actions have been taken in response to years of unconventional currency management practices which have discouraged investors and resulted in a scarcity of US dollars.
“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,” Rusike stated.
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