Why Ethiopia, Nigeria Swapped $100M

The central banks of Ethiopia and Nigeria have swapped USD 100 million in blocked funds as both countries struggle with severe shortages of hard currency.

The currency deal involves swapping revenues of Ethiopian Airlines from Nigeria and earnings of Dangote Cement in Ethiopia, as the two companies struggled to repatriate profits amid forex shortages in both countries.

The swap arrangement enables Ethiopia to access funds blocked in Nigerian banks, while Nigeria gains access to money held up in Ethiopia.

Ethiopian Airlines is the largest foreign carrier operating in Nigeria, with extensive flight networks spanning major cities like Lagos, Abuja and Kano.

The airline benefits from strong demand from Nigerian travelers going abroad but much of its revenue has been blocked as Nigeria struggles with critical shortages of foreign exchange, making swapping the last resort.

Dangote Cement has been a major player in Ethiopia’s construction sector for over a decade. The company has the capacity to produce 2.5 million tons of cement yearly.

However, as Dangote became unable to repatriate its profits in Ethiopian currency, money began piling up within the country, according to company sources.

With funds stuck in Ethiopia, the central bank finally offered Dangote a currency swap proposal, allowing it to exchange its excess Ethiopian birr for USD held by overseas firms operating in Ethiopia.

Officials say the currency swap allows Ethiopia to access funds blocked in Nigerian banks – including large amounts owed to Ethiopian Airlines – while Nigeria gains access to Ethiopian funds through Dangote Cement, a major Nigerian firm operating in Ethiopia.

Sources at the Central Bank of Ethiopia confirmed it had reached an agreement with its Nigerian counterpart to conduct a “temporary swap of foreign currencies.”

Aviation sources say Ethiopian Airlines exchanged USD 100 million of the USD 180 million in blocked funds in Nigeria for birr from Dangote Cement.

“The National Bank will pay us the equivalent swapped amount in birr,” Ethiopian Airlines CEO Mesfin Tassew told The Reporter, adding there are no plans to swap the remaining amount.

Sources say Dangote still has over USD 200 million unrepatriated from Ethiopia.

Nigeria has faced a critical shortage of foreign currency reserves recently.

The central bank of Nigeria has had to ration dollars to reduce the strain on its reserves, which fell from a peak of USD 62 billion 15 years ago to around USD 36.6 billion in December. This followed a drop in crude production in Africa’s largest oil producer due to rampant theft, vandalism and declining investment.

Ethiopia’s foreign exchange shortage has reached critical levels, making it difficult for the country to import essential goods like pharmaceuticals and industrial inputs. Ethiopia’s forex reserves are insufficient to cover even one month of imports.

The dearth of hard currency has also discouraged much-needed investment in Ethiopia, forcing the National Bank of Ethiopia to introduce reforms aimed at easing the constraints facing investors.

The central bank has now begun providing guarantees allowing investors willing to invest in key sectors through public-private partnerships with the Ethiopian government to repatriate their profits.