Dollar @ ₦1,700: Structuring Your Contracts to Handle FX Volatility

One morning, the dollar crossed ₦1,700.

By evening, WhatsApp groups were on fire. Suppliers were panicking. Clients were renegotiating. Some contracts became unprofitable overnight.

For Nigerian businesses earning in naira but paying in dollars, or earning in dollars but pricing poorly, FX volatility stopped being an economic headline and became a real business threat.

This article explains how FX volatility affects contracts, the mistakes businesses make, and how to structure agreements that survive currency shocks.

What FX Volatility Really Means

FX volatility refers to frequent and unpredictable changes in exchange rates.

In Nigeria, this usually shows up as:

• Rapid naira depreciation
• Multiple exchange rate benchmarks
• Wide gaps between official and market rates
• Sudden cost increases on dollar obligations

FX volatility does not only affect importers. It affects anyone with foreign currency exposure, directly or indirectly.

Why ₦1,700/$ Is a Contract Problem

A contract is a promise about future value.

When the exchange rate shifts sharply, that promise breaks.

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Example:

• Contract signed at ₦900/$
• Payment due six months later
• Dollar moves to ₦1,700/$

If your contract does not adjust for FX volatility, your margin disappears.

Contracts that ignore currency risk assume stability. Nigeria does not offer that luxury.

Who Is Most Exposed to FX Volatility

You are highly exposed if you:

• Earn in naira but pay suppliers in dollars
• Invoice international clients without FX clauses
• Fix naira prices for long-term services
• Pay SaaS tools, licenses, or cloud costs in USD
• Sign multi-year contracts without currency adjustment terms

Many businesses do not realize their exposure until the damage is done.

Common Contract Mistakes During FX Swings

Businesses often make these errors:

• Fixing naira prices for long durations
• Using vague “exchange rate applicable” language
• Assuming FX losses can be absorbed
• Avoiding uncomfortable pricing conversations
• Signing contracts without financial review

Each mistake magnifies FX volatility risk.

Key Contract Clauses That Protect You

1. Currency Denomination Clause

Clearly state whether payments are due in:

• USD
• Naira equivalent of USD
• Naira at a specified exchange rate source

Ambiguity is expensive.

2. FX Adjustment Clause

This clause allows pricing to adjust if exchange rates move beyond a defined threshold.

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Example:

“If the exchange rate moves by more than 5%, prices will be reviewed.”

3. Exchange Rate Source Clause

Always define the rate source:

• CBN rate
• I&E window
• Bank selling rate
• Agreed market benchmark

Without this, disputes are inevitable.

4. Payment Timing Clause

Long payment cycles increase FX exposure.

Shorter timelines reduce volatility risk.

A Short Story: The Contract That Killed a Profitable Deal

Ibrahim ran a logistics support company. He signed a 12-month contract priced in naira when the dollar was around ₦750.

Six months later, FX volatility hit hard.

His fuel, spare parts, and software costs were dollar-linked. Revenue stayed fixed. Costs doubled.

By month nine, he was operating at a loss.

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The contract was profitable on paper.
It was financially blind in reality.

Practical Ways to Structure FX-Safe Contracts

1. Price in USD Where Possible

If your costs are dollar-linked, your revenue should be too.

2. Use Shorter Contract Cycles

Shorter terms allow regular repricing.

3. Add FX Review Triggers

Do not wait for disaster. Define thresholds upfront.

4. Separate FX-Sensitive Costs

Break out variable FX costs instead of bundling everything into one price.

5. Review Contracts With Financial Context

Legal review alone is not enough. Contracts need financial stress testing.

How Zaccheus Helps You Manage FX Exposure

FX volatility is not just a legal issue. It is a financial one.

Zaccheus, your AI CFO, helps Nigerian businesses:

• Identify FX-exposed costs
• Model currency movement impact
• Understand true margins under different rates
• Make smarter pricing and contract decisions

Instead of reacting to FX shocks, you plan for them.

Frequently Asked Questions About FX Volatility

Can contracts be renegotiated due to FX volatility?

Only if clauses allow it or both parties agree. Poorly structured contracts limit flexibility.

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Is pricing in USD always better?

Not always. It depends on client tolerance, regulations, and cost structure.

Does FX volatility affect local businesses?

Yes. Even fully local businesses often have hidden dollar exposure.

How often should FX-sensitive contracts be reviewed?

At least quarterly in volatile environments.

Can software really help manage FX risk?

Yes. Visibility into costs and margins improves decision-making significantly.

Final Thoughts and Next Steps

FX volatility is not temporary. It is the environment Nigerian businesses operate in.

When the dollar hits ₦1,700, contracts that ignore currency risk become liabilities.

Smart businesses structure contracts that adapt, protect margins, and preserve cash flow.

Call to Action

Do not let exchange rate shocks wipe out your profits.

Visit usezaccheus.com and let Zaccheus, your AI CFO, help you model FX risk, protect margins, and make smarter financial decisions in volatile times.

 

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