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Naira depreciation weighs on NSE-listed multinationals

Monday, 15 April 2024 14:21
Naira depreciation weighs on NSE-listed multinationals

(Ecofin Agency) - Several multinational companies on the Lagos Stock Exchange are grappling with the adverse effects of the Nigerian naira's depreciation and are currently exploring coping strategies.

For example, Nigerian Breweries, the subsidiary of the Dutch group Heineken, reported a loss of 106.3 billion nairas ($92.27 million) for 2023, marking its first loss in a decade. Despite an 8.9% increase in sales, its net result was affected by rising costs due to inflation and a 449.7% increase in financial charges related to international debt obligations.

The company has already raised its product prices three times since the beginning of the year. It plans a 600 billion naira capital increase to strengthen its equity and address short- to medium-term commitments.

Another hard-hit company is MTN Nigeria, the largest market of SA’s telecom operator MTN, which saw its contribution plummet by nearly 80%. Additionally, the local subsidiary of the British group Unilever has stopped local production of its household and personal care products, and British PZ Cussons is on the verge of undergoing a restructuring that could cost $1.5 billion.

Upon taking office in June 2023, Nigerian President Bola Tinubu implemented his campaign promise to regulate the management of foreign exchange reserves differently, pegging it to the market's net value. This resulted in a currency devaluation, highlighting the local industry's heavy dependence on foreign inputs.

The currency depreciation is compounded by an acceleration in price increases, which have reached 37%, while the GDP grows at a slower pace. Meanwhile, Nigeria's population continues to rise, reaching 211 million according to data from Ecofin Pro's knowledge base. This rapid population increase, combined with high inflation and slow income growth, has significantly eroded the purchasing power of people.

The Lagos Stock Exchange is currently experiencing dynamic market trends. According to data from African-Markets, the main index has seen a significant increase of 36.6% since the beginning of the year, making it the best-performing index in Africa. However, for multinationals operating in the region, the outlook is less positive. Nigerian Breweries has lost 22% since the start of 2024, and MTN Nigeria has declined by 14% over the same period.

The full extent of the challenge is still unknown, especially for several of these companies that have been in Nigeria for years and have gone through multiple economic cycles. According to data analyzed by Ecofin Agency, total revenue at the Lagos Stock Exchange has grown by an average of 34% over the last three years, and net profit has increased by an average of 23% annually.

The current situation questions the idea that a weak currency enhances a country's competitiveness and attracts more foreign investors. In this case, economic players are worried and are planning to restructure their presence.

Recently, experts from Goldman Sachs, the American investment bank, indicated that the naira is regaining value against the dollar. This analysis is supported by African Markets, which shows that the currency has been the second-best performer in Africa since the beginning of the year. However, it remains unclear what level of naira value is essential for enabling a resurgence in growth and a reduction in inflation.



Public Management

ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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