International carriers may follow the example of United Airlines and Iberia and halt operations in Nigeria or cut flights as they struggle to move revenue out of the country because the oil-price slump has depleted the African nation’s foreign exchange reserves.
Iberia suspended its route to Nigeria on May 12, followed by United, which said it would end flights from the US to Nigeria at the end of June because of a lack of demand and trouble collecting payments. British Airways and Emirates have said they are facing difficulties obtaining outstanding fares.
“Besides an inability to repatriate profit, passengers are reducing because the economy is going down,” John Ojikutu, CEO of Centurion Aviation Consultancy, said in Lagos. More airlines would probably cancel routes to Nigeria, he said.
The country is on the verge of a recession, oil production has fallen to a three-decade low, and the budget deficit has swollen to a record. The economy contracted for the first time since 2004 in the first quarter, and foreign-currency reserves have slipped to $26.4bn, the lowest in more than a decade.
Faced with dwindling oil revenues, the central bank has restricted access to foreign exchange. Nigeria has held the naira at 197/$ to 199/$ since March 2015, unlike many other oil producers affected by the slump in crude prices since mid-2014 that let their currencies weaken. As the dollar shortage has worsened, the naira’s value has plummeted on the parallel market.
President Muhammadu Buhari gave the central bank the go-ahead on May 29 to introduce a more flexible exchange rate, while maintaining his opposition to a full currency devaluation.
No details on the measures have been made public. Finance Minister Kemi Adeosun told investors in London on Tuesday it would take “days or weeks” to implement them, according to sources who attended the meeting.
Bloomberg