Businesses operating in Nigeria have envisaged increased losses in the second quarter of the year, following foreign exchange reforms.
Already, nine firms had lost N960.18bn to the new forex policy in the second quarter.
According to the half-year financial reports of the firms, the steep devaluation of the naira, following the Central Bank of Nigeria’s attempt to close the gap between the official and parallel rates of the naira, negatively impacted their businesses.
Firms including MTN Nigeria Communications Plc, Airtel Africa Plc, Dangote Cement Plc, Dangote Sugar Refinery Plc, Nestle Nigeria Plc, MRS Oil Nigeria Plc, Guinness Nigeria Plc, Nigerian Breweries Plc, and Seplat Energy Plc recorded N960.18bn as foreign exchange losses in the first six months of 2023.
The firms stated that the full impact of the forex reforms would reflect in the second half of the year.
MTN, one of the firms, stated, “These policy reforms are expected to be positive for the economy in the medium to long term. However, in the short term, they have created additional financial burdens on consumers and businesses, and these will be fully reflected in the pressures on our margins in H2.”
It added, “The exchange rate is adjusted based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the quarter for others. As a result, the full impact is expected to kick-in in H2.”
Airtel, another firm, said its loss from naira devaluation could grow from $800m to $900m in annualised loss from the $471m it lost as of the quarter ended June 30, 2023.
It said, “In line with the sensitivity analysis published, the impact of the devaluation seen to date is expected to be between$850m and $900m on annualised revenues. The naira devaluation impact reported this quarter amounts to only $45m reflecting the timing of the devaluation.”
Since the CBN directed banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market, the naira had fluctuated heavily. It had traded consistently above N700/dollar from the N450/dollar it hovered around before the forex reforms.
So far MTN said it had lost N131.5bn due to the forex reforms, and its profit after tax fell by 29.1 per cent to N128.69bn in the first half of 2023.
Airtel declared a $151m loss following a foreign exchange loss of $471m before tax. Dangote Cement declared N113.63bn (in a table) as its net exchange loss on foreign-denominated transactions for six months ended June 30, 2023.
Dangote Sugar recorded an exchange loss in the ordinary course of business of N83.09bn. Nestle’s net foreign exchange loss was N123.77bn (in a table). Guinness foreign exchange loss was N49.09bn. Nigerian Breweries Plc had a net loss on foreign exchange transactions of N85.26bn for the year to date (June 30, 2023).
Seplat’s loss on foreign exchange amounted to N17.21bn for the half year and MRS’s net forex loss was N2.43bn, from a net forex gain of N27.76m in the corresponding period of 2022.
Despite recording huge losses in H1, 2023, many of the firms expect the return of international capital into the capital markets and foreign direct investments.
Commenting on the forex loss by the firms, the Managing Director of Arthur Steven Asset Management, Tunde Amolegbe, stated that it was expected, given the economic headwinds businesses have had to deal with in the first half of the year.
He stated that despite the struggle of these firms, they were having to deal with an inability to pass on costs to their customers due to inflation and high finance cost. However, Amolegbe, expected that as the year progresses there will be adjustments.
According to the Managing Director/Chief Business Officer, Optimus by Afrinvest, Ayodeji Ebo, most of the firms impacted by the forex reforms had foreign loans, and had their loans revalued to reflect the new FX rate.
He said, “Based on reporting, they were all using the I& E window rate, which was over N460, now they have to use the current rate, which is over N750, which is massive, and that has led to significant FX losses.
“Beyond that, one would also see that for most of them, the FX losses have not crystallised (into real losses) because it is based on valuation. What we have seen is that their finance cost will increase significantly, because they earn revenue in naira, and they are servicing their loans in dollars. That will impact their profitability. It is going to be tough.”
The Managing Director of Cowry Asset Management, Johnson Chukwu, stated that the lack of preparation on the part of the government before its FX reforms were announced has landed the country in a tight spot.
He stated this while calling for stability in the forex market at the last World Bank and Lagos Business School Economist Review Report in Lagos.
He said, “The key thing that is missing in the reforms is the level of thought process that went into it. The exchange rate has not been able to achieve some stability. For economic agent, it doesn’t really matter what the exchange rate is, what matter is the level of stability.”