Mixed signals: Recent foreign exchange controls have led to varied reactions among manufacturers

One of the most visible policy moves by Nigerian authorities in 2016 has been to limit access to foreign currency in the country. The decision to institute capital controls was rolled out as a result of low oil prices, which have led to a drop in dollar-denominated export revenues and put the naira under increasing pressure. To limit the need for the Central Bank of Nigeria (CBN) to use up its foreign reserves defending the naira, the government opted to refuse the release of foreign exchange (forex) to pay for imports in 41 categories of goods. This has caused new complications for industrial producers that rely on imported inputs for production, and has led to significant constraints in supply chain management.


Relying on the parallel forex market in Nigeria, in which the naira cost 50% more than the official rate of $1:N200 in early 2016, meant passing along price increases to a market of consumers largely unable to afford them, sinking overall demand in the economy in the process. While the CBN eventually opted to shift to a free float in mid-June 2016, which brought the official rate closer to that of the parallel market, the 41 lines of goods remained ineligible for currency support from the central bank.

While the capital controls do provide some momentum by boosting the rationale for domestic investment in new production capacity, they have also made it more challenging to secure imported raw materials and semi-finished goods. Industry, which depends on such inputs from abroad, currently accounts for more than 50% of imports. These declined in 2015; Nigeria’s Customs Service said revenue from ports dropped $1.2bn on the year. Adrian Naidoo, country manager for Nigeria at mill operations supplier Bühler Group, told OBG, “In the first half of 2016 forex constraints impacted many businesses that rely on hard currency to import raw materials or machinery.”

In the food and fast-moving consumer goods (FMCG) sectors, manufacturers have had to search for alternatives to palm and vegetable oils, or pay more and either raise prices or shrink product sizes. Other food products on the list include poultry and meats, margarine and fish. Cold-rolled and galvanised steels are also on the list, as are wire rods and mesh, wood particle boards and panels, and plywoods. Joan Ihekwaba, general manager for marketing at UAC Foods, told OBG that supply chain management has become more unpredictable as a result. “You cannot do any forward planning for procurement,” she said. “Suppliers just cannot guarantee that they can deliver for more than a few weeks or a month.” Suppliers, she added, have been asking for cash up-front. UAC’s flagship product is the Gala sausage roll, a popular snack. Rather than increase the price from N50 ($0.25), the company has chosen to reduce the product’s size from 90 grams to 85 grams.

Raw Materials

According to Frank Jacobs, president of the Manufacturers Association of Nigeria, the central bank’s import restriction policy has resulted in increased difficulties for manufacturers in securing supplies of 31 different types of raw materials. Furthermore, the central bank’s Purchasing Managers’ Index has indicated slowdowns in manufacturing throughout the first five months of 2016. In the most recent survey for August 2016, 15 out of 16 subsectors recorded declines in production levels. These included fabricated steel products, food and beverages, textiles and electrical equipment, among others. While electrical equipment saw no change, that was an improvement over contraction in July 2016.

The restrictions have also pushed local industry to further increase their capacity in order to meet the growing need for inputs. “Sourcing more raw materials locally is becoming an increasingly attractive option for domestic manufacturers, as it is an effective way to lower costs,” Christos Giannopoulos, CEO of PZ Cussons Nigeria, a UK-based manufacturer of health care products and consumer goods, told OBG.