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Mon, Aug 7, 2023 4:25 PM

Foreign Exchange Unification: Nigerian Manufacturers Counting Losses as Banks Reap Benefits

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Foreign Exchange Unification: Nigerian Manufacturers Counting Losses as Banks Reap Benefits
Nigerian manufacturing companies are facing significant losses following the foreign exchange unification policy implemented by the Central Bank of Nigeria (CBN). The rise in the Monetary Policy Rate (MPR) has favored banks, but left manufacturers with higher costs of capital. As a result, these companies have reported massive losses in their half-year financial statements. Nestle Nigeria, Dangote Sugar, Nigerian Breweries, and Cadbury Nigeria are among the most affected companies. The losses are primarily attributed to forex losses resulting from the CBN's reforms.

Lagos - The foreign exchange unification policy implemented by the Central Bank of Nigeria (CBN) has had a detrimental effect on Nigerian manufacturing companies. While banks have reaped the benefits of the rise in the Monetary Policy Rate (MPR), these companies are counting their losses.

With the inflation rate reaching a staggering 22.79% in June, analysts predict that the CBN will need to explore alternative solutions to address this issue and improve the output and employment rates in the real sector.

Banking stocks have shown a remarkable rally in the first half of 2023, and this trend seems set to continue in the third quarter. The high-interest rate environment and fair value adjustments to FX derivatives have contributed to the banks' increased earnings before tax.

When the forex unification policy was first announced, manufacturing companies were optimistic that it would work in their favor. Segun Ajayi-Kadir, the Director General of the Manufacturers Association of Nigeria (MAN), expressed his belief that the policy would enhance market efficiency, boost investor confidence, and resolve the foreign exchange problems in the country.

However, just two months after the implementation of the policy, manufacturing companies are reeling from huge losses. The shareholders of three major manufacturing giants are particularly worried, as these companies have reported significant losses after tax.

Nestle Nigeria takes the lead with a staggering net loss of N58.691 billion in the first half of the year. Dangote Sugar and Nigerian Breweries follow closely, having reported losses of N40.79 billion and N36.883 billion, respectively, between April and June.

Nestle Nigeria's half-year results indicate a pre-tax loss of N86.5 billion, wiping out their first-quarter profits and resulting in one of the worst performances in recent years. The significant loss can be attributed to a forex loss of N123.7 billion, impacting the company's profits negatively.

Nigerian Breweries also suffered a pre-tax loss of N50.2 billion in the second quarter, while Guinness Nigeria recorded a loss after tax of N18.1 billion for the full year.

Cadbury Nigeria joined its counterparts with foreign exchange losses amounting to N20.77 billion. The company declared a loss before tax of N14.52 billion for the first half of the year, in contrast to a profit before tax of N3.35 billion reported in the same period of 2022.

These losses for Cadbury Nigeria can be attributed to the impact of the naira unification on its loans. The company holds foreign exchange-related loans with dollar-denominated interest rate components, which led to these losses due to the depreciation of the naira against the dollar.

Despite the challenging circumstances, there have been some positive developments. Cadbury Nigeria experienced a 28% improvement in revenue for the period, driven by high domestic demand.

Wassim Elhusseini, the managing director/CEO of Nestle Nigeria, expressed the impact of the recent devaluation of the naira on their H1 performance. He stated, "Going into the second half of the year, we will continue to focus on optimizing our operations to ensure the availability and accessibility of the nutritious food and beverages our loyal customers expect from us."

Oyeyimika Adeboye, the Managing Director of Cadbury Nigeria, acknowledged the tough challenges faced by businesses operating in Nigeria. He attributed the significant impacts on their performance to rising inflation and devaluation, which have increased manufacturing and operational costs. Despite these challenges, Cadbury Nigeria remains focused on resilience and innovation to navigate the difficult operating environment.

The foreign exchange unification policy has presented a mixed bag of outcomes for Nigerian businesses. While banks have thrived, manufacturing companies have encountered substantial losses. As the CBN works towards addressing inflation and improving the real sector's output, it is vital to find a balance that supports the growth of all sectors of the economy.

Source of content: OOO News 2023-08-07 News

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