PZ Cussons Plc says it is paying as much as 70 per cent more than the official rate for dollars as the Central Bank of Nigeria trading restrictions reduce availability of foreign currency in Africa’s biggest economy.
“Whilst the official naira exchange rate continues to be stable, a lack of availability at that rate is resulting in the majority of dollars being purchased at a premium of 50 per cent to 70 per cent,” the Manchester-based maker of Imperial Leather soap said in a trading update on Thursday.
“The resultant cost impact is being managed through changes to relative pricing in an environment where trading conditions remain challenging. The situation in Nigeria remains extremely fluid,” it added.
Bloomberg reports that while oil revenue and exports have plummeted since 2014, the Governor of the CBN, Godwin Emefiele, and President Muhammadu Buhari have refused to let the naira weaken. They have pegged it since March 2015 at 197-199 against the dollar through currency-trading and import restrictions that have deterred foreign investment and made it tough for manufacturers to buy inputs from abroad.
The black market rate has fallen to 320, around the level PZ Cussons implies it is buying dollars.
Listed companies in Nigeria still try and source foreign exchange from their banks at the official rate, even though it is becoming harder.
Unilever Plc, which like PZ Cussons has a subsidiary trading on the Nigerian Stock Exchange, said last month it would be “very insane” for the country to persist with the currency policies.
Nestle SA said its local unit has had to widen the number of banks it uses so that it can access enough foreign exchange. Last year, it was waiting as long as six weeks to be allocated dollars, according to Renaissance Capital Limited analysts.
PZ Cussons Nigeria Plc’s shares have fallen 8.6 per cent to N23.50 this year. The country’s All Share Index has dropped by 14 per cent, the fifth-most globally among 93 indexes tracked by Bloomberg.
Meanwhile, Exotix Partners LLP has said Nigerian foreign exchange controls are undermining political reforms by Buhari and making the country “uninvestable” for buyers who measure returns in dollars.
The reorganisation of the state oil company’s structure, changes to the nation’s bureaucracy and Buhari’s efforts to curb corruption all point to “root and branch” changes to the country’s governance structures, Hasnain Malik, head of frontier markets strategy at London-based Exotix, said in an interview with Bloomberg in Nairobi, the Kenyan capital.
Malik said, “All of that is a pretty powerful political and governance reform story. It’s undermined from a foreign institutional investor standpoint by a very repressive economic policy and specifically a currency policy.
“If you’re a dollar-based investor, you can’t get over the fact that you could see either a major deterioration in the dollar value of your investment or your investment may be stuck.”
Volumes have recovered at the stock Exchange in the past two weeks as companies have paid out dividends and those who are prevented by the foreign-exchange policy from repatriating their funds are reinvesting, said Ali Khalpey, head of equities at Exotix.
“A lot of our clients have got trapped naira sitting in Nigeria, so now we see recycling of that naira back into the equities market. There is no point sitting in a foreign currency line not knowing when you are going to get given your FX. You may as well buy the stock that you like over the long-term and hold it,” Khalpey said.
While the amount of investor funds trapped in the country is unknown, it’s increasing, Khalpey said.
“People aren’t allowed to take their dividends out. Clearly, that number is growing on a daily basis,” he added.
Nigeria risks being kicked out of the MSCI Frontier Markets Index by the end of the month because of the currency controls. If the New York-based organisation decides to exclude Nigerian stocks, the country could see about $480m of equity investments exit, the Chief Executive Officer, Nigerian Stock Exchange, Oscar Onyema, said in an interview on Tuesday.
