Africa’s richest man got
a fistful of dollars in Nigerian currency squeeze
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[June 23, 2016]
By Ulf Laessing and and Himanshu Ojha
LAGOS/LONDON (Reuters) - As Nigeria
grapples with a foreign exchange crisis, one person stands out in
the scramble to obtain hard currency: Aliko Dangote, Africa's
richest man.
When the government restricted the supply of dollars in June 2015 to
prop up the value of the Nigerian naira, firms owned by Dangote
landed a healthy share of dollars available at the cheap official
rate, a study by Reuters shows.
Reuters examined foreign currency transactions made during an
11-week period in March to May this year. Over that time, Dangote
businesses were able to buy at least $161 million in hard currency
from the central bank. That was around nine percent of all the hard
currency the bank sold over the period. In a single week in March,
one dollar in every eight went to Dangote companies. There is not
enough data to see how that stacks up with the companies' share of
foreign trade.
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, Nigeria pegged its currency, the naira, to the
U.S. dollar at an official rate of 197-199 naira. The central bank
doled out dollars at the official rate to companies it deemed
strategic to the Nigerian economy. Until June 20, when the 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, said that 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.
Up to 100 firms either shut completely or cut production, he said.
"The large companies have better clout."
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 Group, the parent firm, declined to comment. 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 by email.
The central bank did not respond to written requests for comment.
Reuters' calculations are based on foreign exchange purchase data
which the Nigerian government required banks to publish. Reuters
examined every transaction that Dangote’s companies made between
March 1 and May 13. One newspaper, This Day, calculated a weekly
total of all the published official transactions. Reuters used this
total to analyze Dangote's share.
In the period Reuters analyzed, the average black market rate was
around 320, according to AbokiFX, a Lagos financial company. The
difference against the official rate equated to about 20 billion
naira ($101 million).
Charles Robertson, global chief economist at Renaissance Capital in
London, said Dangote got more hard currency than other firms because
his plan to build a refinery will help the government end fuel
imports, which cost Nigeria some $6 billion annually.
"A lot of drain on the foreign exchange is from the need to buy
imported fuel," he said. "Getting the refinery going will require a
lot of investment and imported goods.
"He's got a track record here. He did it with flour. He did it with
cement and now the idea is he does it with the oil refinery ... He
is trusted. You no longer need to rely on foreigners, Nigerians can
do it themselves."
"FRENZIED PURSUIT"
The collapse in the oil price has hit Nigeria's revenues hard,
pushing it into its worst economic crisis for decades. Crude oil and
gas revenues bring in 90 percent of its foreign currency earnings
and fund 70 percent of the state budget. At the same time as
collecting lower revenues 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 central bank
abandoned the currency peg, the naira tumbled 30 percent against the
dollar in a single day.
President Muhammadu Buhari, a former military ruler who was elected
to office in March last year, has made it a priority to fund
investments which can help make the country more self-sufficient in
everything from food to energy. Buhari often uses the slogan, "We
must produce what we eat." Last month, he said the central bank
would give firms which helped to diversify the economy "incentives,"
without saying what that meant. Buhari's office declined to comment
for this story.
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Founder and Chief Executive of the Dangote Group Aliko Dangote
gestures during an interview with Reuters in his office in Lagos,
Nigeria, June 13, 2012. REUTERS/Akintunde Akinleye/File Photo
Buhari backed central bank plans to adopt a more flexible foreign exchange
policy. But he long resisted devaluing the official naira rate. In a speech last
month, he said, "we cannot get away from the fact that a strong currency is
predicated on a strong economy."
Atedo Peterside, chairman of Lagos-based Stanbic Bank, told a conference in
February that the peg had guaranteed "huge windfall incomes" to those lucky
enough to get dollars allocated at the official rate. Some speculators would buy
dollars at the official rate and sell them for a quick profit on the parallel
market.
"Most investors here are currently caught in a frenzied pursuit of the cheapest
available dollars," he said. "The difference between losing this game and
winning it can be as high as a mind-boggling 50 per cent."
In January, Central Bank 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.
Muda Yusuf, a spokesman for the Lagos Chamber of Commerce, said the central
bank's allocation of hard currency gave businesses only 20 percent of what they
needed to operate. Even state oil firm NNPC had to ask big international oil
firms for loans worth $200 million to fund fuel imports, according its Managing
Director, Emmanuel Ibe Kachikwu.
In a February interview Dangote's brother Sani Dangote, Group Vice President,
said the firm was not getting 100 percent of its foreign exchange needs. "We're
getting some amount to make sure the industries keep going," he said, adding
that the firm'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.
Reuters' analysis shows that 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.
POLITICAL CURRENCY
Technically, commercial banks decided how to allocate dollars. But executives at
import firms say the central bank played a big part.
Competition among industrial bosses for the central bank's attention was on
display in April at the funeral of Governor Emefiele's mother. Dozens of
business leaders attended the service, including Dangote and the CEOs of most
big banks. Business leaders, dressed in traditional robes, left their bodyguards
behind as they crammed into the small town of Agbor deep in the Niger Delta.
Since founding his business in the 1970s, Dangote has been close to a series of
presidents, both military and elected. He was an economic adviser to Buhari's
predecessor Goodluck Jonathan, who ruled from 2010 to 2015.
Although Dangote built his business under Jonathan's People's Democratic Party,
he also had links with the opposition. On election night in 2015, when Buhari
ousted Jonathan, a smiling Dangote was pictured next to Buhari at a house in
Abuja as results came in.
Moses Ochonu, a Nigerian-born African history professor at Vanderbilt University
in the United States, has criticized Dangote for having outsized power in the
Nigerian economy. But he says Dangote also creates jobs. "People are willing to
give him the benefit," he said. "He’s contributing a lot to the economy."
(Additional reporting by Christian Merenini, Samuel G. Idowu and Unamba Doris
Onyi; Edited by Simon Robinson and Sara Ledwith)
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