Nigerian firms address dollar debt amid latest CBN reforms

Nigerian firms are addressing overdue dollar commitments following central bank reforms that bolstered liquidity in the nation’s foreign exchange market, Bloomberg reported on Wednesday.

Major entities like MTN Nigeria Communications Plc, BUA Foods Plc, and Cadbury Schweppes Overseas Ltd.’s Nigerian arm now report improved access to dollars for meeting foreign currency obligations. Previously, scarcity hindered profit repatriation and payment to foreign suppliers.

MTN Nigeria, the largest mobile operator, strategically reduced its letters of credit obligations by 41.6 per cent to $243.4 million, benefiting from enhanced liquidity.

The Central Bank of Nigeria (CBN) implemented measures this year to boost liquidity, including raising its benchmark rate by 600 basis points and abandoning the currency’s peg, allowing market-driven exchange rates.

Positive responses to reforms are evident in increased portfolio flows and FX turnover, which has more than doubled since 2023 lows.

Dollar liquidity surged by 90 per cent to $160.8 million within a day, with the CBN actively selling dollars to bolster retail distribution. Despite these improvements, the naira weakened by 1.2 per cent to 1,416 against the dollar.

BUA Foods capitalised on improved dollar liquidity, reducing debts by about 6 per cent in Q1, expressing optimism for improved performance in H1 2024.

Cadbury Nigeria also benefitted, accessing all dollar needs from the official market since the year’s onset, resulting in decreased local-currency cash reserves due to advance foreign exchange purchases.

Increased dollar liquidity offers relief for debt repayment and mitigates the impact of devaluation, noted economist Adetilewa Adebajo. However, sustaining liquidity is crucial for the desired corporate turnaround in the coming year, requiring positive real rates, inflation-matched interest rates, and fiscal responsibility to be upheld by authorities.