…as weak naira takes toll on companies’ operations

Stakeholders in Nigeria’s real sector have advised small and medium size enterprises as well as other big manufacturing firms to turn the current foreign exchange crisis into an opportunity through the export of their goods and services. They also said that with the scarcity of foreign exchange to import equipment, local fabricators of manufacturing equipment stand a chance to prosper.

The stakeholders, who made these remarks in separate exclusive interactions with The Nigerian Observer, added that since the foreign exchange market operates under the forces of demand and supply, by embracing exports, Nigerian manufacturers would be able to earn in hard currencies, thereby reducing the pressure on the naira.

Speaking in an interview with The Nigerian Observer in Benin City, the Managing Director and Chief Executive Officer of Okomu Oil Plc, Dr Graham Hefer, advised that embracing exports now would provide a buffer against forex scarcity to many companies in the country.

Hefer said the devaluation of the naira has affected every company in the country, making it more expensive for the companies to import parts and machinery that they may need. However, Okomu has found a way to navigate that challenge through export.

“Luckily for Okomu, we have rubber which we export so we are able to bring back the forex to utilize so that it protects us and buffers us to a degree. It still doesn’t mean we do not have issues because you know, it is not just the devaluation, it is actually finding the money,” Hefer said.

“To find the forex is very difficult in an environment where there is such a limited amount of it going around and that does affect the company as well but luckily, we have been buffered to a greater or lesser extent by our rubber exports.

“I will say this is a good time to export because you do have these kinds of things and I think if a company is able to export a product, it does make it an advantage for the company,” he said.

Since the floating of the naira last June, the exchange rates of the local currency, the naira, to major international currencies such as the US dollar and the British Pound Sterling, among others have befuddled most Nigerians as rates continue to depreciate across markets, even with several complementary moves by the Central Bank of Nigeria (CBN) and the executive arm of the federal government.

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According to the data provided by the FMDQ Exchange, the naira to the US dollar exchange rate closed at N1,537.96/$ on 16 February 2024. It recorded a high of N1,631 and a low of N1,000 to the US dollar on the same day.

Lending credence to the unpredictability in the nation’s forex market, the CBN readjusted the exchange rate for computing Nigeria Customs’ duties from N1,472.756 to the US dollar to N1,493.23 to the US dollar on 17 February 2024.

It should be noted that Nigeria approved an exchange rate of N800/$ as the final budget assumption in its 2024 Appropriation Act, implying that with the current exchange rate to the US dollar approved for the Customs Service, the CBN has tacitly accepted that the assumption is not realistic in the near term.

Meanwhile, Ehrunse Oviawe, managing director of Bragav Nigeria Limited, which is into oil palm business, advised local manufacturers to explore domestic fabricators of manufacturing equipment amid forex scarcity to import foreign-made machinery.

Oviawe, in an interview with The Nigerian Observer, noted that there are some brilliant local fabricators that will configure and manufacture equipment to the specification of their clients.

“We cope by trying to see what we can get within the environment here in Nigeria. We don’t have to go abroad to start getting foreign exchange. We have a lot of machinery, although we don’t make them but we can source them out within the Nigeria system here,” Oviawe said.

“We have a lot of engineers that are very smart and intelligent, they fabricate. If you come to the farm, you will see they do a lot of fabrication. They bring some of these things in, they add their own and everything is going well. Our engineers are doing very well right now because you can’t access or get your equipment from abroad, so you have to go to them and let them do some fabrication for you,” he said.

Analysts at the Lagos-based Financial Derivatives Company (FDC) have attributed Nigeria’s current forex dilemma to a number of factors including low forex supply, loss of confidence as a store of value, increased naira speculation and fear, restriction and exchange control, as well as negative real interest rate.

“Rebuilding confidence in the FX markets is the first step. To attract investors, interest rates need to match inflation and narrow negative real rates of return. Additionally, the CBN should implement an open auction system, dismantling the monopolistic FX market structure to let demand and supply determine prices,” FDC stated.