Dollar scarcity: Firms struggle to repay foreign loans

Nigerian companies, which are exposed to foreign loans, are in for hard times due to the lingering foreign exchange crisis. ANNA OKON writes that most of them are finding it difficult to service the loans

Although foreign loans are attractive for their single digit and low interest rates, the continued depreciation in value of the naira against major foreign currencies has turned them into a huge burden for borrowers in Nigeria.

The naira currently exchanges for N197 to a dollar at the official window and N320 at the parallel market.

Investigations by our correspondent revealed that Nigerian firms that borrowed dollar denominated loans were facing the risk of foreclosure on assets pledged as collateral and loss of credibility among creditors.

It was gathered that whereas some of them took credit facilities at a time when the dollar exchanged for N150, now that the currency is exchanging for N320, the cost of servicing the loans had now gone up by 100 per cent.

Although the losses would have been less if some of the firms were able to service the loans at the official exchange rate of N197 to a dollar, the Central Bank of Nigeria had in the wake of the sharp drop in crude oil prices embarked on forex rationing measures,

cutting off most firms from access to the official window.

The Managing Director of Spectranet, a leading Internet Service Provider in the country, David Venn, said the company had taken foreign loans when the exchange rate was N160 to a dollar, but that difficulties in accessing dollars to service the loans at the official exchange rate posed a lot of challenges for the company’s earnings and credit rating.

He said, “We have some debts due for repayment in dollars. We have borrowed billions of dollars at N160 but the exchange rate is now above N300.

“We have the cash but we cannot pay and it affects our credit rating. The official rate is N200 but we cannot get the dollar at N200.”

Also, the Managing Director, Kasapreko, makers of the popular Alomo Bitters, Mr. Kojo Nunoo, regretted that the inability to access dollars to service the loan had plunged the business into a lot of difficulties.

He said, “The dollar scarcity has plunged our business into a lot of difficulties, because we have serious working capital tied up here.

“That has posed a lot of challenges to the company, because the money is sitting here earning nothing; and then we are borrowing in Ghana to finance the business in Nigeria and pay interest. So, we are not getting any of our money here and then we are paying interest on the loans we have borrowed back home. If we are not careful, we may collapse if we don’t get out.”

A recent survey detailed the ongoing crisis in the real sector of the Nigerian economy.

The survey conducted by PricewaterhouseCoopers showed that over 60 per cent of companies in Nigeria recorded huge declining sales/revenue as a result of the forex rationing policy.

The report, commissioned by the Lagos Chamber of Commerce and Industry, and unveiled in Lagos  by the President, LCCI, Dr. Nike Akande, and the Regional Managing Partner, West Africa, PwC, Mr. Uyi Akpata, revealed that 42 per cent of the companies had been implementing aggressive cost-cutting measures, while 18 per cent were already sacking staff.

The Director-General, LCCI, Mr. Muda Yusuf, told our correspondent that investors who were exposed to foreign facilities were finding things very difficult at the moment.

He said, “When you are taking foreign loans, one of the biggest risks you face is exchange rate fluctuations. For a long time, Nigeria has had very stable exchange rate; so, the risks did not quite crystallise; but now, the risks have crystallised and many firms find it difficult to manage the situation.

“If you took the loan when the exchange rate was N150 and now you are talking of N300, immediately your cost has gone up by 100 per cent. If the loan is not used for a venture that is also generating foreign exchange, it becomes more difficult.”

According to Yusuf, the only way to mitigate the loss will be to access foreign exchange from the official window at N197-N200 to a dollar.

But a source in one of the commercial banks said firms were not able to service foreign loans from the official forex window.

“The official window is a very tight window and firms are not having access to it. That is why they are calling it an emergency situation,” the source said.

According to the LCCI DG, the situation is more challenging for firms that do not have exportable products, which are only servicing the domestic market.

He said, “For many of them, depending on their kind of product, you cannot easily transfer that additional cost to your customers; so, that makes it even more difficult.

“It means as an investor, you have to bear that kind of loss. In fact, if there is any group of investors that you can define as the casualties of the current situation, it is businesses that have exposure to foreign facilities and obligations.”

The Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, said borrowers could always turn to the government for help with the official exchange rate if they operated in the preferred sectors of the economy, including oil and gas, or other top priority arrears.

He said, “That is why when one is getting a foreign loan, one has to make provision for contingency.  The exchange rate has gone up and it may not come down again.

“Firms taking foreign loans should make sure they have a foreign partner who has a convertible currency.”

Ekpo, however, observed that the interest rates on the foreign loans were always too low for the borrowers to suffer great losses.

A lecturer of Economics at the University of Calabar, Dr. Joe Eba, however, berated some firms that took foreign loans, noting that some of them did not use the money for productive ventures.

Eba said indiscriminate borrowing in the past had thrown the government into serious problem of repayment, bringing about the country’s indebtedness to the Paris and London clubs of creditors.

According to him, that is why there are strict procedures for taking foreign loans, adding that it was not easy to just go and borrow from foreign creditors.

Eba stated, “My advice is that they should monitor those who are borrowing the loans to make sure that they are producing with the money and not just using the money for imports.

“People should be discouraged from collecting foreign loans. China succeeded because it closed its doors to foreign products. People hide under all sorts of excuses, but I believe the government does not withhold forex from firms that have genuine need for them and that use them for productive ventures that will help the economy.”

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