Nigerian companies are paying overdue dollar obligations after recent central bank reforms led to increased liquidity in the West African nation’s foreign exchange market. Bloomberg reported yesterday.

MTN Nigeria Communications Plc, BUA Foods Plc and Cadbury Schweppes Overseas Ltd.’s Nigeria unit, some of the biggest firms in Africa’s most populous nation, have reported that they are now able to access dollars to meet their foreign currency obligations.

The development marked a reversal of a situation where the scarcity of greenbacks left them unable to repatriate profits or pay foreign suppliers.

BrandIconImage recalls that in March alone the CBN said the economy recorded over $1.5 billion in foreign exchange  inflow, indicating its monetary policy initiatives were becoming effective.

The bank’s acting Director, Corporate Communications Department, Hakama Ali, was reported to have said that the naira was headed towards the right direction, and the administration of Yemi Cardoso, CBN governor, remained committed to ensuring the stability of the market and the appropriate pricing of the naira against other major currencies worldwide.

At the time, Cardoso said the major objective of the CBN was to manage inflation, but said the bank was not unmindful of the impact that the interest rate increases were having.

MTN Nigeria, the nation’s biggest mobile operator, “utilised the improved liquidity in the foreign exchange market” to reduce letters of credit obligations by 41.6 per cent to $243.4 million from $416.6 million in December, in a bid to curb losses, Chief Financial Officer Modupe Kadiri, said at investor conference, quoted by Bloomberg.

The CBN has since the beginning of this year introduced measures to improve liquidity, including raising its benchmark rate 600 basis points to attract capital inflows and dumping the currency’s peg to allow the market to determine the naira’s exchange rate.

This was after years of unorthodox currency management deterred investors and caused a scarcity of the greenback.

“Portfolio flows have responded positively to reforms with increased FX turnover,” Tatonga Rusike, sub-Saharan Africa economist at Bank of America Corporation, said in an investment note. “The average daily FX turnover has more than doubled from 2023 lows,” Rusike added.

Dollar liquidity jumped 90 per cent to $160.8 million on Tuesday from a day earlier, Chapel Hill Denham said in emailed note yesterday.  The central bank is also selling dollars to money traders to boost distribution to retail users. Still, the naira weakened 1.2 per cent to 1,416 to the dollar Tuesday.

BUA Foods, the country’s biggest food and beverage company, took advantage of the improved dollar liquidity to prune debts by about 6 per cent in the first quarter of this year, Managing Director Ayodele Abioye said.

“Dollar availability will no doubt have positive impact going forward and we are optimistic of better performance for half-year 2024,” he added.

Similarly, Cadbury Nigeria has been able to access all its dollar needs from the official market since the beginning 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 by phone.

While liquidity has improved, it has to be sustained for the next year to support the turnaround companies desire, according to Adebajo.

“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 stressed.

Last year, after taking over the reins of power, President Bola Tinubu, moved to collapse the multiple FX rate, effectively devaluing the Naira and embarking on a free-floating local currency.