The Federal Government of Nigeria and Ethiopia’s central banks have reached a deal to swap $100 million in funds blocked as a result of a shortage of foreign currency in both countries, according to the Ethiopian news outlet, The Reporter.
Under the deal, both Dangote Cement and Ethiopian Airlines
will swap funds from their trapped revenue in Nigeria and Ethiopia. Sources in
the aviation industry reveal that Ethiopian Airlines will exchange $100 million
out of the total $180 million in blocked funds in Nigeria for Ethiopian birr
from Dangote Cement, Ethiopia.
“The National Bank will reimburse us with the equivalent
amount in Ethiopian birr,” stated Mesfin Tassew, the CEO of Ethiopian Airlines,
in an interview with The Reporter. He also mentioned that there are no current
plans to swap the remaining amount.
The two African countries have struggled with the
repatriation of funds, with millions of dollars trapped in the revenue of
foreign companies owing to the massive decline in foreign currency inflow.
Sources from the Central Bank of Ethiopia, quoted by The
Reporter, confirmed it had reached an agreement with its Nigerian counterpart
to conduct a “temporary swap of foreign currencies.”
Dangote Cement, which produces about 2.5 million tons of cement
yearly in Ethiopia, has more than $2 million held in the country, while
Ethiopian Airlines – which is popular among Nigerian international travelers –
has about $180 million to be repatriated.
The situation highlights the seriousness of the forex crisis
in both countries. Ethiopia is currently facing a severe foreign exchange
scarcity, reaching a critical stage that hampers the country’s ability to
import crucial commodities such as pharmaceuticals and industrial resources.
The foreign exchange reserves held by Ethiopia are
inadequate to support even a single month of imports, according to The
Reporter.
Insufficient forex liquidity in the North African country
has dampened the interest of investors, prompting the National Bank of Ethiopia
to implement reforms aimed at mitigating FX obstacles faced by investors.
In Nigeria, the effect of the dollar shortage has not only
inspired rising inflation, it has also forced the blocking of revenues of
foreign companies operating in the country.
Last year, United Arab Emirates-based airline, Fly Emirates,
twice, called off its operation in Nigeria due to its inability to repatriate
more than $500 million in trapped funds.
But unlike the UAE’s Fly Emirates, Ethiopian Airlines, which
is the largest foreign carrier operating in Nigeria – with international
operations covering major cities like Lagos, Abuja, and Kano, shares a similar
problem of dollar shortage with Nigeria.
Dangote Cement, which has been a major player in Ethiopia’s
construction sector for over a decade, and Ethiopian Airlines, have over the
years – accumulated millions of dollars in blocked funds.
In June, under the leadership of Nigeria’s new President
Bola Tinubu, the Central Bank of Nigeria (CBN) floated the country’s forex
market, in a move to collapse multiple exchange rates into one. Though the move
has been applauded as a bold step in attracting foreign investment, it is yet
to solve the forex shortage problem.
Nigeria has seen its foreign reserves drop to $34 billion as
of May, following the massive decline in oil revenue – its major source of
forex.
The accumulated trapped funds are said to have inspired
investors’ suspicion that Nigeria’s dollar reserves are not as large as the CBN
says. Investors are concerned that Africa’s largest economy is struggling to
pay off debts that it should be able to pay easily given the volume of its
foreign reserves.
“The suspicion is that Nigeria’s external reserves are much
less than what the CBN reports,” a fund manager based in South Africa is quoted
to have said on condition of anonymity. “The level of opacity is alarming and
is a real drag on investor confidence.”
Given their shared forex challenge, the Ethiopian central
bank offered Dangote Cement a currency swap proposal, allowing it to exchange
its excess Ethiopian birr for US dollars held by overseas firms operating in
Ethiopia.
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