Banks

RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

Continue Reading

Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

Continue Reading

Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

Continue Reading

Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading

Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Categorized | Currencies

Currency controls force Nigerian manufacturers to buy locally


Posted on November 27, 2016

Factories are closing, dollars are scarce and the country is in recession. Yet Frank Jacobs, leader of a big manufacturers trade group, is optimistic about Nigeria’s future.

“We are beginning to find other things to do to earn foreign exchange,” says Mr Jacobs, president of the Manufacturers Association of Nigeria (MAN). His members will play an essential role in recovery “because we create jobs, we create wealth.”

The health of Nigeria’s economy has long been tied to oil, which as recently as last year made up 90 per cent of exports by value.

President Muhammadu Buhari has promised Nigerians he will wean the country off this dependence and drive investment into other industries, particularly manufacturing.

“A strong manufacturing sector will create more jobs and wealth for our people,” Mr Buhari said at a conference organised by MAN in September. “It will usher in sustainable economic prosperity because we will produce what we consume as a nation and generate foreign exchange by exporting any surplus.”

But while Mr Buhari’s government wants to boost manufacturing, it has yet to introduce any firm policies to do so and is finding the money to fund this transformation hard to come by.

Already buffeted by the global fall in the price of crude, the oil industry is struggling with acts of sabotage by militants targeting petroleum infrastructure, which at one point cut Nigeria’s daily production from just over 2m barrels a day to as little as 1.4m barrels.

That helped push the economy into recession in the second quarter and caused a shortage of foreign currency. With many factories dependent on imported raw materials but unable to find the dollars to pay for them, the manufacturing sector shrunk by 7 per cent in the first quarter and just over 3 per cent in the second.

A central bank policy introduced last June that was intended to help domestic producers has hit supply chains. It prevents importers from buying foreign currencies from banks if they intend to use the money to pay for 41 listed items. The idea is to encourage homegrown producers to meet domestic demand.

Some factories whose supply chains required items on the central bank’s ban list, such as margarine or glass, have had to go without, or buy dollars on the black market at high mark-ups.

“Some of those companies are closing shops. Others are cutting their production, hoping there will be change in the policy somewhere down the line. But, eventually, when they run out of those raw materials and they’re not able to find substitutes within the country, they will likely shut down, too,” Mr Jacobs says, adding that 20 companies have closed as a result of the central bank’s policy since it took effect 12 months ago.

Some companies have adapted to the ban by looking for local suppliers of products they normally import. PZ Cussons Nigeria — a manufacturer of items including generators, food and soaps — imports about 70 per cent of its raw materials, from the resin in its plastic bottles to the chemicals that make up its dish soap.

With the central bank cutting off the supply of dollars to pay for palm oil, Christos Giannopoulos, chief executive of PZ Cussons, says the company has started to rely on local plantations.

However, Nigeria’s palm oil production is not currently enough to satisfy the country’s total demand. “I think it is something that will take years,” Mr Giannopoulos says, but he is optimistic that domestic suppliers will eventually be able to meet demand.

The conditions have nevertheless taken a toll: PZ Cussons reported a $5m loss in the quarter ending in August, which Mr Giannopoulos blamed on its struggle to buy foreign exchange to pay for imported raw materials.

In August the central bank said it wanted commercial banks to allocate 60 per cent of their foreign exchange to manufacturers, but Mr Jacobs says that governor Godwin Emefiele has told him that the central bank does not have the dollars available to make that happen.

Other manufacturers say they want to expand, but have been daunted by Nigeria’s tough business climate. Nigeria ranks poorly in 169th position on the World Bank’s ease of doing business index.

Even though fruits such as pineapples, papayas and mangoes are grown locally and sold on street corners across Nigeria, Affiong Williams has to import produce from Ghana and Benin for ReelFruit, her dried fruit business.

Nigeria’s supply is unreliable, she says, and transportation costs are so high that it can be cheaper to move fruit across an international border than from the other side of Nigeria.

As she works to raise money to open a fruit drying factory so she can export to markets in Europe and the Middle East, Ms Williams has been daunted by the paperwork required to transport goods out of Nigerian ports.

“You need to register almost five different agencies just to be clear to export,” Ms Williams says. “Surely that’s due for review right now [if the government] actually wants people to export.”

Mr Buhari has vowed to push Nigeria up into the top 100 countries on the World Bank ranking for doing business by 2019. Chinwe Egwim, an analyst at Lagos-based FBN Quest, the investment management arm of First Bank of Nigeria, says state governments such as those of Anambra in the south-east and Ogun in the south-west have already taken steps to improve business conditions, bringing in policies to help housebuilding and agricultural exports.

While it remains to be seen if the federal government will be able to carry out improvements nationally, Ms Egwim says the emphasis on local production has already changed the way manufacturers buy their products.