Forex scarcity is a ‘major challenge,’- Nestle and Airtel CEOs
The Nigerian units of Bharti Airtel Ltd. and Nestle SA said shortages of foreign exchange in the West African nation are hindering their operations and ability to import equipment.
“It continues to be a major challenge,” Dharnesh Gordhon, chief executive officer of Nestle Nigeria Plc, said at an event organised by the Nigerian Stock Exchange and Bloomberg in Lagos on Wednesday. Imports of machine parts, spare parts and some packaging have become more expensive, and even local suppliers are putting up their prices to compensate for a weakening naira, he said.
Businesses have suffered from a shortage of hard currency in the country for the last two years as oil prices and foreign investment have crashed. Manufacturers say they need a steady supply of foreign exchange to pay for imports as they struggle to buy many raw materials and parts locally. An almost 40 percent devaluation of the naira against the dollar since June hasn’t yet led to many new inflows.
The scarcity is a “big issue for everyone,” Segun Ogunsanya, head of Airtel Nigeria, said at the same event. It’s “impacted us significantly in the way we invest in new technologies,” he said.
Both companies are also battling a downturn in the Nigerian economy. Growth slumped 2.1 percent year-on-year in the second quarter, the National Bureau of Statistics said Wednesday in an e-mailed statement. This was following a 0.4 percent decline in the first three months of the year. The International Monetary Fund forecasts the economy will shrink 1.8 percent this year for the first time since 1991.
“People cannot afford anymore protein,” Ghordon said. “The amount of protein they are adding to their meal on a daily basis is becoming less because they just don’t have the money. They are looking for ways to make that meal tastier and” it’s up to Nestle to come up with ways for consumers to achieve that, he said.
Power cuts are worsening as gas supplies to electricity plants are reduced, partly because of militant attacks on pipelines in the south of the country, Gordhon said. Nestle Nigeria’s shares are down 24 percent in the past two years, compared with 34 percent for the benchmark stock index in the country.
“The challenge is how do you satisfy demand when you have supply challenges,” Gordhon said. “Supply challenges mean no gas, infrastructure challenges, crime increasing, no foreign exchange.”