The recent reforms initiated by the Central Bank of Nigeria (CBN) are starting to yield positive results, as Nigerian companies are now able to settle their overdue dollar obligations.
This development, reported by Bloomberg, reflects a significant shift in the foreign exchange market dynamics within the country.
Key Nigerian companies such as MTN Nigeria Communications Plc, BUA Foods Plc, and Cadbury Schweppes Overseas Limited’s Nigerian arm have confirmed their ability to procure dollars for fulfilling their foreign currency obligations.
Previously, the scarcity of US dollars had posed challenges for companies in repatriating profits or settling payments to foreign suppliers.
Bloomberg’s findings indicate a substantial increase in dollar liquidity, with dollar liquidity surging by 90% to $160.8 million on Tuesday compared to the previous day.
The CBN’s efforts, including selling dollars to money traders to boost distribution to retail users, have contributed to this increased liquidity.
Despite the increased liquidity, the naira depreciated by 1.2% against the dollar on Tuesday, reaching 1,416 against the dollar.
MTN Nigeria has been able to reduce its letters of credit obligations significantly, while BUA Foods and Cadbury Nigeria have also benefited from enhanced dollar liquidity.
Managing Director Ayodele Abioye expressed optimism about future performance, citing the positive impact of increased dollar availability.
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According to economist and CEO at Lagos-based CFG Advisory, Adetilewa Adebajo, the increased liquidity provides a respite for companies to pay down debts and mitigate the effects of devaluation.
However, sustaining this liquidity over the long term is crucial for the desired turnaround of companies.
The CBN has implemented several measures since the beginning of the year to enhance liquidity within the economy, including increasing its benchmark rate and removing the currency’s peg.
These reforms aim to address years of unconventional currency management practices that have discouraged investors and led to a scarcity of US dollars.
Overall, the reforms have been positively received, with portfolio flows responding favorably and average daily FX turnover more than doubling from 2023 lows.
This signals a promising outlook for Nigeria’s economy and its foreign exchange market.
