Nigeria is facing a serious challenge in its foreign currency (FCY) management, which could have negative implications for its international obligations and investment treaties.

The country has been struggling to meet the demand for FCY from various sectors of the economy, especially the importers and foreign investors. This has led to a shortage of FCY in the official market and a wide gap between the official and parallel exchange rates.

The Central Bank of Nigeria (CBN) has introduced several measures to address the situation, such as restricting access to FCY for certain imports, imposing capital controls, and devaluing the naira. However, these measures have not been effective in stabilizing the exchange rate or boosting the supply of FCY. Instead, they have created distortions and uncertainties in the market, and increased the risk of litigation and arbitration from foreign investors and creditors.

One of the main risks that Nigeria faces is the potential breach of its international agreements and investment treaties as a result of its FCY policies. Nigeria is a party to several bilateral and multilateral treaties that protect the rights and interests of foreign investors and creditors in the country. These treaties typically include provisions that guarantee fair and equitable treatment, non-discrimination, free transfer of funds, protection from expropriation, and dispute resolution mechanisms.

Some of these treaties also contain stabilization clauses that prevent Nigeria from changing its laws or policies in a way that adversely affects the contractual obligations or expectations of foreign investors and creditors. For example, Nigeria has signed several power purchase agreements (PPAs) with independent power producers (IPPs) that are denominated in US dollars.

These PPAs require Nigeria to pay the IPPs in US dollars at a specified exchange rate, regardless of the fluctuations in the market. However, due to the shortage of FCY, Nigeria has been unable to fulfill its payment obligations under these PPAs, which could trigger claims for breach of contract and treaty violations.

Another risk that Nigeria faces is the potential loss of its sovereign immunity and assets in case of an adverse award or judgment from a foreign court or tribunal. Nigeria has waived its sovereign immunity in many of its international agreements and investment treaties, which means that it can be sued by foreign investors and creditors in their home countries or in a neutral forum.

If Nigeria loses such a case, it could face enforcement actions against its assets abroad, such as bank accounts, properties, or oil cargoes. This could have serious consequences for Nigeria’s reputation, credit rating, and economic stability.

Therefore, it is imperative that Nigeria reviews its FCY policies and adopts a more flexible and market-driven approach that balances its domestic needs with its international obligations. Nigeria should also engage in constructive dialogue and negotiation with its foreign investors and creditors to resolve any disputes amicably and avoid costly litigation and arbitration.

Nigeria should also seek technical assistance and support from its development partners and multilateral institutions to address its structural challenges and improve its FCY management.

The Naira is Undervalued: CBN Unveils Plan to Tackle Forex Crisis in 2024

The governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has unveiled a fresh plan to address the country’s lingering forex crisis in 2024.

In his keynote address at the Nigeria Economic Group outlook for 2024, which was held via video conference, acknowledged the impact of the forex crisis, which has resulted in the massive decline of the country’s currency, the naira, on the economy.

Admitting that the situation requires urgent measures, Cardoso said that the naira is undervalued and requires collaborative efforts between the monetary and fiscal sides of the economy to achieve genuine price discovery.

“We believe that the naira is currently undervalued. And coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term. This coordinated approach will contribute to a more balanced and stable exchange rate,” he said.

According to him, the commitment to collaborating with the Ministry of Finance underscores the acknowledgment that addressing the forex crisis requires a comprehensive approach. He said that the ultimate objective is to establish a stable and balanced exchange rate that genuinely mirrors the true value of the naira.

Cardoso also addressed the issue of dwindling forex reserves, outlining the Central Bank’s partnership with the Ministry of Finance and the Nigerian National Petroleum Corporation Limited (NNPCL). He assured that all foreign exchange inflows would be returned to the bank, contributing to the accretion of the country’s foreign reserves.

The governor noted that boosting forex reserves is crucial for Nigeria’s economic stability. Adequate reserves act as a safeguard against external shocks, ensuring the nation’s ability to meet international financial obligations and maintain exchange rate stability.

Furthermore, Cardoso highlighted the Central Bank’s commitment to implementing inflation-taming policies. He pointed to the expected resumption of operations in the country’s three refineries, saying that it would contribute to a reduction in the pump prices of Premium Motor Spirit (PMS), a significant component of the Consumer Price Index (CPI) basket.

“Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, which aims to rein in inflation to 21.4%,” he stated. This ambitious target aligns with the Central Bank’s broader objective of fostering economic growth and providing a more predictable cost environment for businesses.

Cardoso also highlighted the potential positive impacts of decreasing inflation in 2024. A more predictable cost environment could lead to lower policy rates, stimulating investment, fueling growth, and creating job opportunities. This optimistic outlook underlines the Central Bank’s belief that addressing the forex crisis and implementing effective inflation-targeting policies can pave the way for a more resilient and prosperous Nigerian economy.

The multifaceted approach, encompassing collaboration with the fiscal side, efforts to increase forex reserves, and inflation-taming policies, aims to achieve genuine price discovery and stability in the foreign exchange market.

However, while Cardoso’s address reflects the Central Bank’s commitment to tackling Nigeria’s forex crisis in 2024, concerns remain over the ineffectual approach deployed by the central bank earlier.

Since last year, the central bank has implemented a series of strategies to address the volatile forex situation. Despite these measures, the naira has continued to decline, reaching its lowest month-on-month point. As of Wednesday, the naira was exchanged at N1,398.083 against the dollar in the parallel market. Although it shows relatively better performance at the official market (NAFEM) at N878.61 per dollar, the prevailing illiquidity in that window has led the parallel market rate to serve as the determining benchmark.

Against this backdrop, the nation watches closely as the central bank implements its freshly announced strategies to tackle the forex headwinds. The success of the CBN plans is expected to play a pivotal role in shaping the country’s economic fortune and fostering sustainable growth.

Chairman Dangote, congratulations: “Dangote Cement has emerged as the first company to achieve a market capitalization of N10 trillion on the Nigerian Exchange Group (NGX), closing trading on Monday with a market cap of N10.098 trillion.” This is simply amazing and impressive.

I have an open invitation for years now to meet Alhaji for a detailed interview. My fixation has been the institutionalization of the Dangote System and the techniques for  building category-king industrialized conglomerates. I have tried to write an ebook   without speaking with him, and also analyzed some of his speeches to get into what drives his business worldwide, yet, it does seem that one has to really make time to take that opportunity.  The team extended the offer to have access to him. This year, I plan to make it happen because if I do it, it will be a required reading in many business schools in Africa.

Good People, one thing is clear: someone needs to make the Dangote System a science which must be studied because across many indicators, he has demonstrated that value could be created despite any paralysis in the land. He has shown  that by accumulating capabilities in many ways, and deploying those in upstream areas where few can operate, one can unlock massive value in economies, and in the process transform sectors even as the rewards come in truckloads of alpha.

Yes, as I have written, “To thrive, you must accumulate capabilities. But greatness comes when you master how to compound those capabilities”. Aliko Dangote is a zen-master of compounding capabilities and we’re witnessing everything. I congratulate him.  Nigeria needs more pioneering entrepreneurs like Dangote to transform the nation. #respect

Dangote Cement Becomes the First Company to Hit N10 trillion Market Cap in NGX

Dangote Cement has emerged as the first company to achieve a market capitalization of N10 trillion on the Nigerian Exchange Group (NGX), closing trading on Monday with a market cap of N10.098 trillion.

The company’s market cap surged by N917 billion in a single trading session, marking an 85.25 percent increase in capital gains for investors.

This achievement comes on the heels of the company displacing Airtel Africa as the most capitalized stock on the local bourse earlier this month.

At the close of Monday’s trading, Dangote Cement’s share price stood at N592.60 per unit, showcasing remarkable performance with a return of over 81.4% in the last 52 weeks. The company holds 17.04 billion outstanding shares, and a significant majority, approximately 85.8%, is controlled by Dangote Industries Limited, spearheaded by Africa’s wealthiest individual, Aliko Dangote.

The company’s growth has been bolstered by strategic initiatives, including two tranches of share repurchases conducted between 2020 and 2022. These buybacks, amounting to 166.9 million shares, are believed to have fortified the stock valuation.

The company’s growth has attracted major investors, with Femi Otedola, a prominent Nigerian billionaire, recently acquiring shares worth an impressive N6 billion in Dangote Cement Plc.

Dangote Cement’s milestone on the NGX has also fueled speculation about the potential listing of other Dangote Group entities, including the newly operational Dangote Petrochemical Refinery. Analysts had projected the listing of Dangote Refinery, along with Dangote Foods (a result of the ongoing merger of Dangote companies) and NNPC Limited, to be major boosts for the capital market.

The refinery’s commencement of production has had a positive ripple effect on the stocks of Dangote Group companies listed on the exchange. Investors in Dangote Cement, Dangote Sugar Refinery, and NASCON Allied Industries have gained over N1.2 trillion during the first two trading sessions of the past week.

Dangote Cement’s achievement comes amid a backdrop of controversy over the high cost of cement in Nigeria. Last year, BUA Cement Plc, the only rival to Dangote Cement in the Nigerian market, took a significant step by reducing the cost of its products from N4,650 to N3,500 per bag.

This move was prompted by discussions within the construction industry, with stakeholders expressing concerns over the high cost of cement in the country.

The Minister of Works and Housing, Dave Umahi, added to the discourse by saying that it’s cheaper to import cement than purchase from local manufacturers – BUA and Dangote Cement. This statement sparked a national conversation around the implications of the high cost of cement on construction in Nigeria.

In his response, BUA Cement’s Chairman, Abdul Samad Rabiu, stated that the company’s decision to reduce cement prices aligns with its mission to support development in the building materials and infrastructure sectors.

However, Dangote Cement, with its products selling in the range of N5,000 to N5,300 per bag, did not follow suit, maintaining its pricing strategy.

Dangote Cement’s dominant assertion on the NGX and the construction industry amid the challenges of cement pricing signifies its position as the major player with substantial market value – underscored by the company’s market cap milestone.

In response to recent speculations surrounding the currency in which refined petroleum products from the Dangote Petroleum Refinery will be sold, oil marketers have sought to allay concerns by stating that the products will be dispensed in the local currency, the naira, and not in US dollars.

The clarification comes amidst the ongoing registration exercise for marketers by the refinery. On Tuesday, MOMAN, IPMAN, and DAPPMAN members were announced by Dangote Refinery as registered members for product distribution. These three major associations, collectively constituting 75 percent of the total market in Nigeria, are integral to the supply chain, facilitating fuel distribution to approximately 150,000 retail outlets across the country.

The $20 billion Dangote Refinery, which commenced the production of Automotive Gas Oil (diesel) and JetA1 (aviation fuel) on January 12, 2023, has, encountered various concerns that need addressing before it initiates the distribution of its products. One of the prominent concerns is the establishment of a pricing template for refined products.

According to The Punch, officials of the Nigerian Midstream and Downstream Petroleum Regulatory Authority have been engaging in discussions with the refinery’s management to finalize the pricing structure for the products.

A significant aspect of the concerns relates to the use of the US dollar in the supply chain. Given that crude oil, the primary raw material for the refinery is an international commodity traded in dollars, questions arose regarding whether the refined products would also be sold in dollars, especially since the plant is located in a free trade zone.

Chief Ukadike Chinedu, the National Public Relations Officer of IPMAN, responded to these concerns, acknowledging that crude oil is indeed purchased in dollars but assuring that this would not dictate the currency for selling refined products in the Nigerian market.

“The legal tender in Nigeria is the naira. The cement being sold by Dangote Cement is done in naira, not in dollars. So why should one think that he will now sell fuel in dollars? Except for the offshore sales for those who want to move the refined products out of Nigeria using vessels to transport them to other countries. Such customers may get theirs in dollar equivalent,” Ukadike explained to The Punch.

The ongoing debate about the currency in which Dangote Refinery will transact its products gains significance against the backdrop of the escalating price of the dollar in Nigeria’s forex market. With crude oil supplied in dollars, some have assumed that the refinery would also adopt the dollar for its product sales.

To put a permanent end to this, Ukadike said that the Nigerian government needs to close up the widening gap in the foreign exchange rate.

“If the exchange rate for the dollar is low, petroleum products would have been cheap in Nigeria because the products are imported. So I believe that Dangote will definitely sell the products in our local currency, which is naira,” Ukadike asserted.

When asked whether marketers had been briefed on the currency for product sales, considering that crude oil is supplied in dollars, Ukadike clarified that the pricing template had not yet been finalized. He stated, “No, the pricing template has not come out. What is going on now is legislation. The template is not yet out. And I must state that there is no way the NNPC will bring out its template in naira and Dangote will bring out its own in dollars. It is not possible! So for the cost of their products, I think they are still trying to fix the prices with the regulatory agencies of the Federal Government.”

The Dangote Petroleum Refinery, with a colossal capacity to refine 650,000 barrels of crude oil per day, has been touted as a crucial solution to the rising cost of petroleum products resulting from the removal of fuel subsidies.

Since its inception, the refinery has received six million barrels of crude oil at its two Single Point Mooring (SPM) locations located 25km from the shore. The initial crude delivery took place on December 12, 2023, and the latest cargo was delivered on January 8, 2024.

In a statement issued by the President of Dangote Group, Aliko Dangote, he affirmed that the products would be available in the market within the month, pending regulatory approvals. Dangote said that the refinery will make a difference in the Nigerian petroleum sector.

“This is a game changer for our country, and I am very fulfilled with the actualization of this project,” he said.

As the registration process for marketers continues and discussions with regulatory authorities progress, the finalization of the pricing template will be a crucial step for Dangote Refinery in addressing concerns and ensuring a smooth transition into the distribution phase. Emphasis is on the commitment to transacting in the local currency, underlining the refinery’s alignment with established business practices within Nigeria.

The anticipation for the refinery’s contribution to stabilizing petroleum product prices remains high, awaiting the formal announcement of the pricing template and subsequent product availability in the market.