|Among others, airlines are being negatively affected by Nigeria's ill-conceived currency peg.|
Caught in this sorry business are companies doing business in Nigeria. As the government aims to conserve foreign exchange and in so doing preserve the dollar peg, it is resorting to limiting the amount of nairas these firms can convert to $:
As Nigeria’s policy makers dither on plans to loosen capital controls and let the naira weaken, foreign companies such as Nampak Ltd. of South Africa and British Airways Plc are battling to get their money out of the country. Nampak, Africa’s biggest producer of beverage cans, is considering currency swaps that would enable the Johannesburg-based company to repatriate money trapped due to the shortage of foreign exchange in Nigeria, its chief executive officer said.The pegged exchange rate--only implemented last year--is in imminent danger, hence the move to limit the naira's convertibility:
“We are exploring structuring options in Nigeria,” Andre de Ruyter said in a phone interview Wednesday. While some companies were contemplating dollar investments into Nigeria, they would want to avoid doing so at an overvalued official exchange rate, he said. “So there’s an option for us to do currency swaps.”
Nigeria has pegged the naira at 197-199 per dollar since March 2015 through import and currency-trading restrictions. While central bank Governor Godwin Emefiele said May 24 that the country would move to a more flexible foreign-exchange regime, with details of how this would work to be announced “within days,” authorities are yet to set out changes in policy.There are indeed shades of Venezuela here as international airlines are having trouble repatriating their profits due to currency inconvertibility:
The capital controls have sent investors fleeing and the black-market exchange rate has plummeted to 350 as the dollar scarcity has worsened. Forward contracts suggest the official rate will fall to 284 in three months.
IATA said that airline revenues worth $5 billion were currently being blocked by countries, with Venezuela and Nigeria the biggest culprits, effectively withholding $3.78 billion and $591 million respectively. Sudan, Egypt and Angola are also blocking the repatriation of airlines’ revenues.Hard times are afoot in Nigeria with political unrest also brewing, but you do have to wonder if its economic woes have been exacerbated by a decision to peg its currency when unable to afford the measures required to maintain such a peg. Then again, who would have thought oil prices would fall to today's levels back in March 2015.