In the midst of Nigeria’s foreign currency squeeze, one person stands out in the scramble to obtain hard currency — Aliko Dangote.
When the Federal Government restricted the supply of dollars in June 2015 to prop up the value of the naira, companies owned by Dangote landed a healthy share of dollars available at official rate.
A survey of foreign currency transactions made during an 11-week period in March to May this year shows that Dangote businesses bought at least $161 million in hard currency from the Central Bank. That was about 9 percent of all the hard currency the apex bank sold over the period.
In a single week in March, one dollar in every eight went to Dangote companies. Compared with buying dollars on the more expensive unofficial market, though, Dangote companies benefited to the tune of about $100 million.
The wrangling for dollars highlights Dangote’s pivotal role as Africa’s biggest economy tries to diversify away from oil.
Over the past year, the Central Bank of Nigeria (CBN) pegged the naira to the dollar at an official rate of between N197 and N199. The CBN doled out dollars at the official rate to companies it deemed strategic to the Nigerian economy. Until June 20, 2016 when the apex bank abandoned the peg, anyone else had to pay a lot more on the black market.
Small businesses complained that the foreign exchange restrictions were forcing them out of business. Frank Jacobs, president of the Manufacturers’ Association of Nigeria (MAN), said the majority of manufacturers — 2,000 of them — had been unable to source raw materials because they could not obtain dollars to pay for imports, adding that up to 100 companies either shut completely or cut production. “The large companies have better clout,” he said.
Dangote’s purchases were entirely legal, and some economists say the 59-year-old deserved such special treatment because he has promised to build a much-needed oil refinery. He also has a track record helping Nigeria become more self-sufficient in cement and food.
Dangote Cement said it had received enough dollars. “We believe that we are being treated fairly and we do not receive preferential treatment,” Chief Financial Officer Brian Egan said.
Late June this year, the average black market rate was about N320 per dollar. The difference against the official rate equated to about N20 billion ($101 million). Analysts are of the view that Dangote got more hard currency than other companies because his plan to build a refinery will help the government end fuel imports, which cost Nigeria about $6 billion a year.
‘Frenzied pursuit’
With the collapse in oil price in the international market which hit Nigeria’s revenue hard, pushing it into its worst economic crisis for decades, most investors are currently caught in a frenzied pursuit of the cheapest available dollars. Crude oil and gas revenue brings in 90 percent of the country’s foreign currency earnings and funds 70 percent of the states’ budget. At the same time as collecting lower revenue from crude oil sales, Nigeria has also had to spend billions importing refined products because it lacks refining capacity.
Africa’s biggest economy contracted for the first time in at least 12 years in the first quarter of this year, and state governments are struggling to pay public servants. After the apex bank abandoned the currency peg, the naira tumbled 30 percent against the dollar in a single day.
President Muhammadu Buhari has made it a priority to fund investments that can help make the country more self-sufficient in everything from food to energy. Recently, the President said the central bank would give companies that helped to diversify the economy incentives.
Buhari backed the central bank’s plans to adopt a more flexible foreign exchange policy. But he long resisted devaluing the official naira rate. “We cannot get away from the fact that a strong currency is predicated on a strong economy,” he said. In January, CBN Governor Godwin Emefiele said the bank would assist the Dangote Group to access foreign exchange to facilitate its refinery project, which will be the country’s first private oil refinery and is due by 2018. Emefiele also said the bank would help companies that boost local food production.
However, Muda Yusuf, Director General of the Lagos Chamber of Commerce and Industry (LCCI) said the apex bank’s allocation of hard currency gave businesses only 20 percent of what they needed to operate.
Sani Dangote, group vice-president, said the Dangote Group was not getting 100 percent of its foreign exchange needs, but “some amount to make sure the industries keep going,” adding that the company’s sugar refinery was running at 60 percent capacity.
But Dangote, whose businesses refine sugar and produce cement and mill flour, continued to expand. He pushed ahead with plans to build the $12 billion oil refinery, a gas pipeline across West Africa, a tomato plant and farms in Nigeria to produce one-million tonnes of rice. Some analysts say about 80 percent of Dangote’s dollar purchases during the 11-week period were for the import of equipment and raw materials for his agricultural, sugar, cement and food companies.
Moses Ochonu, a Nigerian-born African history professor at Vanderbilt University in the US, has criticised Dangote for having outsized power in the Nigerian economy. But he admits Dangote also creates jobs. “People are willing to give him the benefit. He is contributing a lot to the economy,” he said.