Major Nigerian companies across various sectors are facing significant challenges due to the prolonged shortage of foreign exchange (forex) resources.
This issue has been exacerbated by a sharp increase in the exchange rate during the latter part of the second quarter of 2023 (Q2’23).
Many of these companies had previously taken forex loans for importing raw materials and other operational inputs before the recent depreciation of the forex.
Nigerian firms report substantial forex losses in H1 2023
As a result, these companies are now reporting substantial losses due to the revaluation of their forex-related operations.
Reports from the Nigerian Exchange Limited (NGX) indicate that approximately 20 of these companies recorded a staggering N656.1 billion in forex losses in the first half of 2023 (H1’23).
This figure represents a significant increase of 709.3% compared to the N81.1 billion recorded in the corresponding period of 2022 (H1’22).
Some experts suggest that the losses may not be limited to just these 20 firms and that the all-sector aggregate losses could surpass three trillion Naira in H1’23 alone.
The companies that have been particularly affected include MTN Nigeria, Nestle Nigeria, Dangote Cement, Nigerian Breweries, and Unilever Nigeria.
These firms have seen their profits and retained earnings significantly impacted by the forex losses.
Industry analysts believe that these companies may recover most of the losses by increasing the prices of their products and services in the second half of 2023 (H2’23).
However, the forex losses have immediate consequences for their financial positions and ability to pay dividends to shareholders.
The short-term challenges stem from the recent decision by the Central Bank of Nigeria (CBN) to float the Naira in the forex market, which led to a sharp depreciation of the currency.
Experts emphasize that these companies need to revise their risk management frameworks and consider alternative approaches to managing their inputs and earning in hard currency to adapt to the current forex market dynamics.
The economic adjustment program, including the free float of the Naira, is seen as necessary for the Nigerian economy in the long run, even though it is causing short-term challenges for these businesses.