Founder and Chief Executive Officer of Clea, Sheriff Adedokun, discusses developments in Nigeria’s foreign exchange market following reforms introduced by the Central Bank of Nigeria in this interview with FELIX OLOYEDE African firms import goods valued at over $1tn annually, but access to foreign currency remains a major challenge for many.
How did we get here? It built up over a long time, and most of it comes down to the fact that the demand for dollars in Nigeria has run well ahead of what the official market could supply. We earn most of our hard currency from oil, so when crude prices move or production dips, the dollars coming in fall, but the appetite to import stays exactly where it is.
For a long stretch, we also had several official exchange rate windows running at once. If you had access to the cheaper window, you could turn around and sell on the parallel market, and that gap would reward the people closest to the allocation rather than the businesses actually trading.
Add years of heavy government borrowing, much of it funded through the central bank, and the naira kept losing ground, which made everyone hold dollars as a store of value. The reforms since then have helped. Reserves are over fifty billion dollars now, and the gap between the official and parallel rates has narrowed a great deal.
But the habit of scarcity, and the distrust it bred, does not unwind in a year. What inspired the establishment of Clea, and what challenge were you aiming to address when you launched the business? It came straight out of my own frustration. Paying suppliers outside the country was harder than finding the goods in the first place.
As Nigerians, we rarely pay suppliers directly. You had to go through an agent, a middleman, or sometimes a friend or relative abroad, trusting them to send the money on your behalf. Many people got scammed outright. Others lost a huge amount to hidden fees they could not see.
I was also scammed before, even by people I trusted. Going through the banks has its own ordeal. The foreign exchange scarcity meant you waited, you ran into monthly caps, and transactions failed with no clear reason. The supplier on the other side did not trust where the money came from either, because so much of it arrived through third parties.
So, you had a trust problem on both ends. We built Clea so individuals and businesses could pay suppliers directly, without any of that. Not only the payment, but the speed and the trust that had been missing for years. How severe is the foreign exchange challenge facing importers today, and what effect is it having on businesses and consumers?
It is still a serious problem, even with the recent stability. The market looks calmer than it did five years ago, but access is the part that has not caught up. An independent importer with a genuine order still struggles to get the dollars they need on time, and that is most of the market.
What it does to a business is force you to price in uncertainty. You do not know what a dollar will cost you by the time your payment clears, so you build a buffer into everything, and your working capital sits frozen in inventory instead of moving. All of that is passed on to the consumer in the end.