Suddenly and steadily, many corporate entities in Nigeria are grinding to a close courtesy of the impact of recent harsh economic policies of the President Bola Ahmed Tinubu administration. Mid-year 2023 reports of many businesses — including outstanding blue chips — clearly show that within the past couple of months they have practically lost all gains they made in recent times. Specifically, the forced floatation of the Naira (otherwise called exchange rates unification) and its consequent devaluation have resulted in massive “foreign exchange losses” by many otherwise highly profitable business organisations. The companies are almost crashing!
Some examples of these big business entities are Nigerian Breweries Plc; Guinness Nigeria Plc; MTN Nigeria Plc; Nestle Nigeria Plc; Dangote Cement Plc; Dangote Sugar Plc; International Breweries; Unilever Nigeria; Sterling Financial Holdings Company; Airtel Africa; Seplat Energy, among many others. The food and beverages giant, Nestle, reported a pre-tax loss of N86.5 billion in the second quarter of the year ended June 30, 2023. Report shows that the losses contributed to wiping out the company’s first quarter profits, taking its half-year profits to N61.6 billion, “one of the worst performances in years.” These losses “are mainly due to a forex loss of N123.7 billion which impacted the company’s profits”, the report said.
Similarly, the leading telecoms company — MTN Nigeria — in its second quarter results, showed that its pre-tax profits fell by a whopping 64 percent to N44.6 billion compared to N268.6 billion in the same period in 2022. Like many other business entities in Nigeria, the company suffered a foreign exchange (forex) loss of N131.4 billion (within the second quarter of 2023) which dragged profits down. The two leading breweries — Nigerian Breweries and Guinness — also incurred huge losses during the second quarter of 2023 owing to the crash of the Naira against the dollar and other foreign currencies. In its interim report for the first half of 2023, Nigerian Breweries recorded an “exchange rate loss” of N70.6 billion, while Guinness reported N49 billion “exchange rate losses” in its full year ended June 2023.
In the Dangote Conglomerate, Dangote Cement’s net “forex loss” on foreign-denominated transactions stood at N113.63 billion in first-half of 2023, up from N40.66 billion in the same period in 2022. Also, Dangote Sugar’s “forex loss” stood at N83.2 billion in the first half of 2023, up from a mere N4.92 billion in same period in 2022. For Sterling Holdings, it recorded a “forex loss” of N3.63 billion in the first six months 2023, as against a gain of N804 million in the same period of 2022. On its part, Cadbury Nigeria Plc declared a loss of N14.52 billion in the first half of 2023, having recorded about N20.77 billion “foreign exchange losses” during the period.
The huge financial losses by these big businesses fully capture the ugly fate and trend in Nigeria’s corporate space, since the unification of the exchange rates and fuel subsidy removal by the Tinubu administration. Unfortunately, the end to this dreary trend of likely high corporate mortality rate is not in sight. There is no foundation for the Naira to strengthen against the dollar any time soon nor is there any export drive initiative yet in place in Nigeria today to tackle dollar scarcity. With the revaluation of the outstanding loans and obligations of these businesses and their other expenditures at current dollar rates, many will go under — as corporate casualties.
The global business and financial consultancy — PriceWaterhouseCoopers (PwC), in its August Economic Outlook for Nigeria, foresees “a sharp depreciation of Naira and resultant increase in cost of importation,” a reality that has further worsened the operating environment for businesses. PwC says it also sees the possibility of widespread freezing of hiring plans, as companies seek creative ways to optimise costs to stay in business. The Economic Outlook report also raised concern about the continued inflationary pressure, which is heightened by the impact of fuel subsidy removal and the forex rates unification. PwC observed that in addition to the threat of rising “forex losses” by businesses, the cost of borrowing in Naira will also remain elevated.
These are not ‘doom prophecies’, but ineluctable consequences of the rash of monetary-cum-fiscal measures of the new government in Abuja. Indeed, the unfolding realities were foretold by this writer in an article titled: “Floating Naira: Death Knell for Nigerian Economy?” soon after the Naira floatation. In the write-up published by ‘National Daily’ newspaper and culled by many on/offline publications, it was noted that: “As a country, Nigeria has been largely import-dependent: a large proportion of the citizenry having preference for foreign goods and services; factories importing machineries and raw materials; Nigerians in their numbers going for foreign degrees and certifications and paying in hard currencies, etc. This reality and preferences exist side-by-side with scarcity of dollars and other foreign currencies over the years. The country has largely been a mono-product economy — depending almost entirely on earnings from crude oil export. No substantial foreign exchange inflow from the export of non-oil items. Indeed, successive administrations had in reality paid only lip service to ‘effective diversification’ of the national economy.
“The consequence of all these has been a lingering shortage of foreign exchange in the forex market: gross undersupply of forex vis-à-vis huge demand. Arbitrary fixing of the exchange rate (especially Naira to dollar) and multiplicity of exchange rates and ‘black markets’ have been the order of the day in Nigeria over the years. In this milieu, the monetary authority applies usually ‘unorthodox’ methods and strategies in ‘defending’ the Naira and conserving the stock of the country’s foreign exchange reserves. Now that the Naira will become a ‘floating currency’, its true strength against the dollar and other currencies will begin to show. As reported above, a day or two after the unification of the exchange rates of the Naira against the dollar, the value of the local currency had slumped: from the official level of N465/$1 in May to about N800/$1. And this is just the beginning of the crash.”
Obviously, as the Naira keeps crashing in the forex market, coupled with other tough environmental factors, most corporate entities in Nigeria are in for rough times. If so many multinationals that are quoted on the Nigerian Stock Exchange (as reported above) could be incurring huge losses, most ‘local’ firms are definitely already scorched. Without any official report, it is safe to say that many micro, small and medium-sized enterprises (MSMEs) have since closed shop — courtesy of sharp rises in costs, runaway inflation rate and other unsavoury factors. It is therefore yet apposite to say that what Nigeria needs badly in addition to the ‘palliatives’ are stimulus packages to jumpstart our recumbent economy. As many businesses are dying, some in ‘intensive care units’, so are other economic agents. And tokenism as encapsulated in palliatives cannot do much; Nigeria badly needs a silver bullet in economic policy!
