Eight Nigerian companies have reported a staggering combined loss of N918.1 billion due to the naira’s devaluation against the dollar. This financial impact follows the Central Bank of Nigeria’s decision in June to let the market determine the local currency’s value, leading to a significant drop in the naira’s value.
The naira’s value plummeted from 461/$1 in December 2022 to 777/$1 by September 2023, a decline of 68.55 per cent. This devaluation has severely impacted companies with foreign currency obligations. Among the affected are prominent firms like Dangote Sugar Refinery Plc, Dangote Cement Plc, Nestle Nigeria Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, MTN Nigeria Communications Plc, Airtel Africa Plc, MRS Oil Nigeria Plc, and Seplat Energy Plc.
Dangote Sugar Refinery reported a revaluation loss of N90.99 billion, while Dangote Cement recorded a loss of N99.02 billion. Nestle Nigeria faced a loss of N143.4 billion, and Nigerian Breweries reported N86.83 billion in losses. MTN Nigeria experienced a forex loss of N232.8 billion on its net foreign currency liabilities. Airtel Africa’s loss after tax amounted to $317 million (N246.31 billion).
This situation reflects the broader economic challenges faced by businesses in Nigeria in 2023, particularly those with foreign loans or obligations. The World Bank has noted that the naira is one of the worst-performing currencies in Africa, losing nearly 40 per cent of its value since June.
The substantial losses incurred by these eight Nigerian firms due to the naira’s devaluation highlight a critical aspect of our economy: the vulnerability of businesses to currency fluctuations. This situation underscores the need for more robust economic policies and strategies to shield the Nigerian business sector from such volatility.
We advocate for a more proactive approach from the government and financial regulators in managing currency risks. It’s essential to create an environment where businesses can hedge against such risks effectively. This could involve more flexible foreign exchange policies, improved access to forex for businesses, and the promotion of financial instruments that mitigate currency risk.
Additionally, there’s a need for businesses to diversify their revenue streams and reduce reliance on imports, which are heavily impacted by currency fluctuations. Encouraging local production and exploring new markets could be vital in cushioning companies from the adverse effects of such economic shocks.
This situation also calls for a reevaluation of Nigeria’s economic reliance on oil, as the fluctuations in oil prices significantly impact the naira’s value. Diversifying the economy, improving the business environment, and investing in other sectors like agriculture, technology, and manufacturing could provide more stability.
While the government plays a crucial role in stabilising the currency, businesses must also adopt strategies to protect themselves from the volatility of the forex market. It’s a collective effort that requires strategic planning, policy reforms, and innovative business practices.
Did You Know?
- Nigerian Economy: Nigeria has the largest economy in Africa, with its GDP predominantly driven by oil exports.
- Currency Fluctuations: The Nigerian naira has experienced significant fluctuations over the years, impacting the economy and businesses.
- Economic Diversification: Efforts are ongoing to diversify Nigeria’s economy away from oil dependency, focusing on sectors like agriculture, technology, and entertainment.
- Foreign Exchange Reserves: Nigeria’s foreign exchange reserves play a crucial role in stabilising the naira, affected by global oil prices and domestic production levels.
- Inflation Impact: Nigeria has faced high inflation rates, which affect consumer purchasing power and business costs, further complicating the economic landscape.