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Naira Devaluation Unleashes Devastating Foreign Exchange Losses for Nigerian Firms as Economic Challenges Persist

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In the wake of Nigeria’s ongoing economic challenges, the nation’s biggest firms find themselves walking a precarious tightrope due to a surge in foreign exchange losses. The devaluation of the naira has significantly impacted profit margins and posed challenges for a sector striving to recover from the economic effects of the currency’s devaluation. In response to the crisis, President Bola Tinubu has pledged to unify the nation’s multiple exchange rates, seeking a remedy for the struggling economy.

About two weeks after President Tinubu’s promise of unification, the Central Bank of Nigeria (CBN) decided to float the naira at the Investors’ and Exporters’ Window of the foreign exchange market. This move triggered a sharp depreciation of the naira from N471/dollar to N870/dollar. The swift decline in the value of the naira has had a profound impact on Nigerian companies, particularly those heavily reliant on imported raw materials and foreign transactions.

Nigerian Breweries, one of the country’s leading beverage manufacturers, reported a net loss of N70.6 billion in foreign exchange during the second quarter of 2023. This brought the year-to-date exchange rate losses to a staggering N85.2 billion. Although the company’s cash reserves remained healthy at N34.9 billion, the foreign exchange losses led to a significant N47.7 billion reduction in net assets.

MTN Nigeria, one of Nigeria’s leading telecommunication company reported a staggering 864.5 percent surge in net foreign exchange losses, totaling N131.45 billion in H1 2023. Despite this, the company declared a profit before tax of N200.4 billion, a 25.4 percent drop from H1 2022. The CEO, Mr. Karl Toriola, attributed the impact to the exchange rate movement, which reached N756.24 against the dollar by June 2023, as the market sought balance.

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Airtel Africa Plc, a major telecommunications player, also felt the brunt of the naira devaluation. The company reported a loss of $151 million due to the harmonization of foreign exchange rates in Nigeria. The devaluation caused a negative impact on the company’s profit after tax, primarily driven by a foreign exchange loss of $471 million recorded in finance cost before tax and $317 million after tax. Airtel’s CEO, Ogunsanya, viewed the reform as positive for the company’s medium and long-term business prospects in Nigeria, the largest market for the telecom giant.

Guinness Nigeria Plc, renowned for its alcoholic beverages, incurred N49 billion in exchange rate losses, leading to a loss of N18.1 billion for the full year ending June 2023. This marked the company’s first full-year loss since 2020 when the COVID-19 pandemic disrupted financials.

Seplat Energy, a leading Nigerian oil and gas exploration company, witnessed a 51.7 percent decline in operating profit to $118.4 million in the first six months of 2023, compared to $245.3 million in the same period in 2022. The decline was attributed to a combination of lower oil prices and foreign exchange losses resulting from changes in exchange rates.

Unilever, one of Nigeria’s prominent manufacturing goods firms, reported a revaluation loss of N14.36 billion in the first half of 2023, compared to N1.06 billion in the same period in 2022. Additionally, the company faced restructuring costs amounting to N2.36 billion, which included the write-off of raw and packaging materials due to production halts and associated redundancy expenses.

Commenting on the situation, Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, highlighted that the naira’s devaluation has been a recurring issue for import-dependent companies. As a result, multinationals that rely heavily on imported raw materials are especially vulnerable to the currency’s fluctuations.

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In light of the currency crisis, analysts at CSL Stockbrokers Limited assert that the unification of the exchange rate will increase the cost of production for companies that import raw materials. Consequently, these companies might pass on the increased costs to consumers, resulting in higher prices for goods and services, particularly imported ones. This additional strain on consumers comes in the aftermath of the removal of fuel subsidies, further complicating Nigeria’s economic landscape.

As President Tinubu seeks to unify the nation’s exchange rates, Nigerian firms are eagerly awaiting the potential benefits and relief it might bring. However, the path to economic stability remains uncertain, and businesses must navigate the challenges brought on by the devaluation of the naira with prudence and resilience.

 

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