Dangote, MTN, others lose N1.7tn to naira depreciation

Dangote Group, Nestle Nigeria and MTN Nigeria, alongside four of Nigeria’s most capitalised companies, lost N1.7tn to the depreciation of the naira in 2023.

According to an analysis of their financial statements published on the website of the Nigerian Exchange Group, the listed firms incurred significant losses in the 2023 financial year, largely due to forex-related losses.

Nigeria’s largest conglomerate, Dangote Industries, in its 2023 financial statement said it incurred N164bn FX loss in 2023. The conglomerate said the loss was primarily due to its operations in other countries.

Another manufacturing giant, BUA, also reported a forex loss of N69.9bn. This represented a significant increase from the N5.5bn it recorded in 2022.

The firm said, “The Company is exposed to foreign exchange risk arising from future commercial transactions and some recognised assets and liabilities to the US dollar and euro.

“Management minimises the effect of the currency exposure by buying foreign currencies when rates are relatively low and using them to settle bills when due. The company is primarily exposed to the US dollar and Euro.”

Meanwhile, Nigerian Breweries, in its audited 2023 financial report, recorded a loss of N153bn, a sharp contrast to the N26.3bn recorded in 2022. This means that the company’s loss increased by 83 per cent in 12 months.

The forex loss had a huge impact on the firm’s overall performance in the 2023 financial year, driving its net loss to N106bn.

FMCG giant, Nestle Nigeria, was not also spared. In its 2023 financials; the company said that due to the depreciation of the naira, it incurred forex-related losses to the tune of N195.bn.

The firm said its profit-after-tax was negatively impacted by the depreciation of the naira as its operating cost jumped by 41.2 per cent to N122.7bn.

Another big player in the FMCG sector, Cadbury Nigeria, in its 2023 financial statement said it incurred a loss of N36.93bn due to exchange rate differences in 2023.

The currency-related challenge was a major theme that negatively impacted the company’s financials in 2023.

In response to the negative equity of N15.08bn recorded in 2023, reflecting a 213 per cent decrease from the previous year, Cadbury Nigeria has proposed a strategic move to address its financial structure.

The company plans to convert its outstanding $7.7m loan payable to its major shareholder, Cadbury Schweppes Overseas Limited, into equity.

In the telecommunications sector, MTN Nigeria recorded a staggering forex loss amounting to N740.4bn. This represented an 804 per cent increase compared to the N81.8bn recorded in 2022.

In the banking industry, FBN Holdings took a significant forex loss valued at more than N350bn in the  2023 financial year.

The HoldCo, in its unaudited financial report, said N253.7bn net forex losses were recorded in the final quarter alone.

It blamed the losses on a policy shift implemented in June 2023 — the liberalisation of the foreign exchange market.

Cumulatively, the seven firms lost a total of N1.7tn to the depreciation of the naira.

In recent months, businesses in Nigeria have grappled with the volatility of the exchange rate, a development that has had devastating consequences for firms with significant forex exposure.

The situation became exacerbated after the Central Bank of Nigeria announced in June 2023 that it would float the local currency to allow it to find its true value.

In its ‘Africa Outlook 2024,’ released in November 2023, the research and analysis division of the Economist Group — Economist Intelligence Unit warned that high inflation and the gap between the official and parallel market rates of the naira will continue to fuel exchange rate instability and result in periodic devaluations.

It said, “Elsewhere, double-digit currency depreciation is anticipated in the major economies of Egypt, Sudan, Ethiopia, Angola, and Nigeria.

“In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure, while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, which will keep foreign investors unnerved.

“High inflation and a continued spread with the parallel market will leave the exchange rate regime unstable and result in periodic devaluations.”

Consequently, in January 2024, the CBN opted to change the methodology for the calculation of the official exchange rate. This led to a further devaluation of the naira, as the local currency reached an all-time low of N1,800/$ in February.

Speaking with The PUNCH, the Vice Chairman Of Highcap Securities Ltd, David Adonri, said the suddenness of the exchange rate floating did not give much room for companies to brace against the impact the new policy would have on business profitability.

Adonri also warned that if the exchange rate crisis is not resolved definitively, more multinational companies may decide to exit Nigeria.

He said, “The floating of the naira was something that happened suddenly. A lot of these users of hard currencies did not prepare for the sudden change of events. That is why they were caught napping.

“Otherwise, if some time was given for them to adjust, they would have been able to review their outstanding obligations in hard currencies or discontinue the pursuit of new obligations in hard currencies until they restructured their systems to absorb the change.

Asked if more multinational companies may decide to join the likes of Procter & Gamble, GSK and Sanofi to exit Nigeria, Adonri said, “Yeah. Because those companies you mentioned are all import-dependent multinational foreign companies that are manufacturing in Nigeria. All their inputs are sourced from their parent companies abroad or outside Nigeria.

“So, the sudden floating of the naira has dealt them a severe blow on the viability of their businesses in Nigeria. That is why they are leaving.”