Flour Mills, Nigeria benefits from Dollar Scarcity

LAGOS (Capital Markets in Africa) – Flour Mills of Nigeria Plc, the country’s biggest miller by market value, said a shortage of dollars in Africa’s most populous nation is boosting sales as buyers starved of the U.S. currency buy more food products locally.

“Everyone is trying to see how to source locally and that is good’’ for Nigerian farmers and processors, Managing Director Paul Gbededo said in a Dec. 16 interview at the company’s corporate headquarters in Lagos, Nigeria’s commercial capital. “We have almost tripled production in refinery of palm oil, palm kernel and soy bean,’’ he said.

Prices have risen alongside demand, Gbededo said. “Fifteen months ago, one ton of corn was sold for 60,000 naira ($190). Today it is 125,000 naira,’’ he said.

Nigeria’s U.S. dollar reserves dwindled after authorities tightened capital controls and restricted banks’ ability to trade foreign-exchange as part of a plan to prop up the naira after it plunged alongside crude prices. In addition, the Central Bank of Nigeria banned importers of 41 items, including palm-oil and rice, from accessing official foreign-exchange markets in June 2015.

Although authorities allowed the naira to float in June in a bid to attract inflows, the U.S. currency remains scarce as most foreign investors that exited the country are yet to return. The economy has shrunk every quarter this year and is forecast by the International Monetary Fund to contract by 1.7 percent in 2016. Inflation accelerated to 18.5 percent in November, the highest rate in 11 years, according to the statistics agency.

Flour Mills’ sales jumped 44 percent to 255 billion naira for the six months through September, according to an Oct. 31 filing to the Nigerian Stock Exchange. Profit after tax dropped to 6.5 billion naira from 24 billion naira due to foreign exchange losses, it said.

The shares have declined 11 percent this year, compared with a 7.3 percent fall on the Nigerian Stock Exchange Main-Board Index. That values the company at 49 billion naira.

The company, which has a milling capacity of 12,000 tons per day, also faces challenges from the lack of dollars as it imports about 1.7 million tons of wheat a year, which is processed into flour and sold to makers of bread, cookies, pasta, noodles and confectionery, according to Gbededo. Flour Mills plans to mitigate against that by growing more of the crop locally and starting a sorghum plant next year that will mill 75,000 tons of sorghum flour annually, Gbededo said.