Nigeria Treasury & FX Update

Following Treasury & FX in Nigeria report summary here of June 2021, availability of hard currency has decreased and the Naira has deteriorated against the US Dollar resulting in a big build up of fast depreciating trapped cash which is very expensive to hedge. This report  focuses on trapped cash, evaluating the options treasurers are considering for cash repatriation and local investments / deposits. Approaches to hedging, lessons learned and initial thoughts on the eNaira were also shared.

This report was compiled by Monie Lindsey.

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Chair’s Overview

 

Following our Treasury & FX in Nigeria treasury peer call report summary here of June 2021, availability of hard currency has decreased and the Naira has deteriorated against the US Dollar resulting in a big build up of fast depreciating trapped cash which is very expensive to hedge. Nigeria is seen as Africa’s most important market and companies aren’t about to leave, so for Treasurers deja vu and riding out the storm.

Naturally the session centred on trapped cash with participants evaluating options for cash repatriation and local investments / deposits. Approaches to hedging, lessons learned and initial thoughts on the eNaira were also shared.

The key takeaways:

  • Access to FX remains limited and the situation isn’t expected to improve until the official and the parallel rates converge which is seen as unlikely in the short term. The expected easing following the Eurobond issuance, rise in oil prices, and the IMF injection has not happened.
  • There have been occasional interventions from the Central bank to help clear
  • All the options are expensive
    • Some banks are offering to sell forwards should the FX become available provided companies deposit twice (with Standard Bank)  or three times the value with some local banks at zero interest.
    • Some participants remain interested in the Citi GDN option despite the high cost (haircut between 25 to 30%), legal concerns, and the (minor) risk that CB permission may not be granted for the USD to be used.
    • Getting FX for intercompany LCs can be prioritised via a zero interest local deposit of 130% which serves as collateral until the USD becomes available. However this hasn’t worked to date due to the lack of FX availability.
  • Interest on deposits of NGN seem to be decreasing from 7-8% to c5% currently being offered by Citi.
  • As well as the MNC banks, local banks such as Zenith Bank and Guaranty Trust Bank. Local investment banks Stanbic ITBC and UBA (United Bank for Africa) were also used to deposit funds.
  • Hedging is expensive and some treasurers are reviewing their hedging strategy for the country and looking at future strategies to minimise local cash balances. 
  • Although the eNaira, Nigeria’s new digital currency won’t ease the immediate currency concerns, some members saw its potential for collections and the company whose platform it uses, Bitt Inc is well regarded.

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