Dollar borrowers worry over naira fall

Top businesses, especially in the manufacturing and oil and gas sectors, are finding it difficult repaying dollar loans they took from banks when naira was stable, The Nation has learnt.
The naira has come under intense pressure in recent months, hitting N570 to a dollar at the parallel market before its gradual recovery with oil prices rising above $83 per barrel.
The borrowers are contending with a naira-dollar exchange rate mismatch between the time the dollar loans were taken and presently.

One of the key players in the oil and gas sector, Kola Adesina, said his company, Sahara Power Group, took dollar loans at a period when the naira was stronger, but faced a major crisis in a repayment following naira’s fall against the dollar.
He said that banks are also reviewing loan pricing for risks and dealing with currency mismatch problems faced by many of their customers that borrowed in foreign currency.

Adesina spoke at the FBNQuest webinar held at the weekend with the theme ‘Mobilising Onshore and Offshore Capital for Strategic Infrastructure Projects in Nigeria.”

He added: “Access to capital is challenging and difficult. Banks are reviewing pricing for risks and loans. We have secured cheap capital but suffered currency mismatch because of the loans we took in dollars. Revenue has not increased in line with exchange rate changes. ” The Managing Director of Sahara Power Group said the company is, however, exploring traditional and non-traditional approaches in resolving the dollar loan challenge.

We are resilient. We did not expect the current naira volatility at the point of borrowing but we are sitting down and resolving it with the banks,” Adesina added.

A director at African Development Bank, Martin Orji, said Development Finance Institutions (DFIs) should work together to deploy cheap capital to Africa to support their continent’s businesses.
He said there are legal frameworks that allow DFIs to collaborate and pull capital together to support businesses in the continent.

Despite the challenges, the naira last week strengthened against the dollar on the unofficial market, appreciating to N560 from N563.5 at the previous week’s close.
This followed rising crude oil prices and reduced demand for the greenback.
Trading Desk Manager, AZA, global forex dealer, Murega Mungai, projects that given buoyant oil prices and the easing of dollar demand, the naira could hold steady in the coming week.

However, the local currency has lost over 28 per cent of its value this year due to dollar scarcity and a decline in crude oil earnings.

Global Chief Economist at Renaissance Capital, an investment bank focusing on emerging and frontier markets, Charlie Robertson noted that the Nigerian economy has been going through a rough patch since 2014 when the price of oil crashed.
He explained that a persistently high inflation rate means a persistently weak currency.

According to him, using the Real Effective Exchange Rate methodology, an approach used to determine the value of a currency vis-à-vis a basket of other currencies based on the relative trade balance, the naira is overvalued “by a good 20 to 30 percent”.
“If the central bank can get inflation to three percent and sticks there, then in 10 years the naira could be N400/N450 per dollar. So it’s all about inflation and the central bank’s success in fighting it,” he added.

The Managing Director, Afrinvest West Africa Plc, Ike Chioke, believes the incorporation of a long-term diversified strategy in fiscal policy is required to cushion shocks in various segments of the economy.

For him, the persistent pressure on the naira could have been minimised if a counter fiscal policy had been developed, as the CBN cannot continue to defend the naira with foreign reserves. “To reduce this pressure, an inward-looking policy (tax incentives, infrastructure development, and production subsidy) should be emphasised to reduce the dependence on imported goods,” he said.

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