The manufacturing sector in Nigeria experienced a substantial 400% increase in net foreign exchange losses, reaching N466 billion in the nine months ending September. This surge is attributed to challenges in the foreign exchange (Forex) market regime, compounded by factors like the removal of the oil subsidy, the Russia-Ukraine war, and adverse global developments. The situation has led to multiple pressure points, negatively affecting the financial stability of major manufacturing companies listed on the Nigerian Exchange Limited (NGX).
Key Points:
- Net Forex Losses:
- The combined net foreign exchange loss for the top 17 manufacturing companies on the NGX rose significantly, increasing by almost 400% from N93.22 billion in the nine months ending September 2022 to N466.02 billion in the same period of 2023.
- Financial Performance:
- Despite a 23.4% growth in combined gross earnings to N4.4 trillion, these companies experienced a 24.6% decline in combined Profit Before Tax (PBT), dropping to N505.15 billion in 9M’23 from N670.09 billion in 9M’22.
- Inflationary Pressures:
- The increased cost of producing consumer goods, including essential commodities, was influenced by inflationary pressures on operating costs. As a result, companies raised product prices, leading to a decline in consumer purchasing power.
- Forex Revaluation Losses:
- Multinational companies, known as blue chips, faced significant forex revaluation losses. Nestle Nigeria, Dangote Cement, Nigerian Breweries, International Breweries, BUA Foods, BUA Cement, Cadbury Nigeria, GlaxoSmithKline, Lafarge Cement, Unilever Nigeria, Vitafoam, Okumu Oil, Guinness Nigeria, Notore Chemical, Nascon Allied, and Dangote Sugar were among the affected companies.
- Impact on Profits:
- Despite an increase in gross earnings, several companies reported a decline in profitability due to forex revaluation losses. Nestle Nigeria recorded a loss before tax of N56.7 billion, while Dangote Cement faced a forex revaluation loss of N99 billion. Other companies like Guinness Nigeria, Unilever Nigeria, and Vitafoam also reported losses.
Expert Reactions:
- Analysts and experts highlighted that the continued impact of forex losses could lead to further inflation and deceleration in output growth.
- Recommendations include companies implementing measures to recover losses through hedging and repricing of earning assets.
Challenges and Potential Solutions:
- Challenges include the depreciation of the Naira and outstanding forex liabilities, negatively affecting manufacturers.
- Solutions involve engaging with manufacturers to address threats to their existence, expecting recovery in due course as the economy adjusts to new market reforms.
Conclusion: The surge in forex losses for the Nigerian manufacturing sector underscores the challenges businesses face in a volatile economic environment. The situation not only impacts company profitability but also has broader implications for inflation, consumer purchasing power, and the overall economic activity. Strategic measures and government intervention may be crucial for stabilizing the sector and fostering sustained economic growth.