Economy

Unemployment explosion looms as seven firms lose N624bn to naira depreciation

The harsh reality of the economy is fast-impacting sectors hitherto assumed to be immune from the vagaries of the overwhelming challenges.

 

If the half-year losses declared by operators, especially those listed on the Nigeria Exchange Limited (NGX) including telecommunications, FMCG and manufacturing, are anything to go by, the worst may be ahead for the local economy, reports The Guardian.

 

The challenges have been traced largely to the foreign exchange (FX) crisis, which has put the naira on a downward trend since the beginning of the year.

 

Checks by this paper showed that about seven firms listed on the exchange – Airtel, MTN, Nigeria Breweries, Guinness Nigeria, Nestle Nigeria, Cadbury Nigeria Plc and Dangote Cement –all incurred N623.6 billion losses due to naira depreciation.

 

Specifically, Airtel Africa Plc, reported that it lost $151 million (N130 billion/going by the current exchange rate) due to the harmonisation of FX rates in Nigeria. It disclosed this in its second quarter report filed with the Nigerian Exchange Limited.

 

“Profit after tax was negative ($151 million), driven largely by a foreign exchange loss of $471 million recorded in finance cost before tax and $317 million after tax, because of the devaluation of the Nigerian naira in June 2023. This impact has been classified as a non-operating exceptional item,” it said.

 

The telecommunications firm said the unification of the exchange rate by the apex bank, which pushed the exchange rate from N460/$ in June to N790/$ was the reason for the loss.

 

The Chief Executive Officer (CEO), Olusegun Ogunsanya, said despite the strong operating performance, “our results have been impacted by foreign exchange headwinds. This quarter saw the announcement of the change to the FX market in Nigeria, which resulted in significant naira devaluation. We have welcomed this reform as very positive for the medium and long-term development of our business in Nigeria, our largest market. The country offers significant untapped growth potential, underpinned by highly attractive fundamentals. This has supported and sustained a strong operating performance which has seen a five-year revenue and EBITDA CAGR of 23.5 per cent and 27.3 per cent in constant currency, respectively.

 

“We expect the FX reforms to improve liquidity over time, thereby alleviating the challenges faced by international businesses over the last few years associated with accessing US dollars and thus hindering accelerated growth. However, in the reporting period, the devaluation has had a material impact on our results. Over the last few years, we have actively reduced our FX exposure across the Group, and this will continue to be a focus area in the future to limit the impact of any future devaluation.”

 

Its competitor, MTN Nigeria Plc, in its 2023 second-quarter results, also disclosed that its pre-tax profits fell by a whopping 64 per cent to N44.6 billion. This took its half-year profits to N200.3 billion compared to N268.6 billion in the same period in 2022.

 

MTN said it suffered a foreign exchange loss of N131.4 billion, which dragged its profit down.

 

MTN reported that the new CBN’s forex operation caused a significant 60 per cent movement in the exchange rate to N756.24/$ by the end of June 2023.

 

MTN Nigeria CEO, Karl Toriola, said: “Although the immediate impact resulted in unrealised forex losses for H1, the company believes that the liberalisation of the forex regime and removal of the fuel subsidy will attract international capital, drive foreign direct investment, and have a net positive effect on their longer-term outlook.”

 

In the brewery sub-sector, Guinness Nigeria incurred N49 billion in exchange rate losses in its 2023 half-year operations. The forex depreciation led the company to a loss of N18.1 billion with a loss per share of N8.29 kobo.

 

Also, within the same period, Nigeria Breweries Plc suffered an exchange rate loss of N70.6 billion.

 

Specifically, the company reported a net loss on foreign exchange of N70.6 billion taking the year-to-date exchange rate loss to N85.2 billion. The losses contributed to a massive N47 billion reduction in net assets.

 

In a statement signed by the Company Secretary/Legal Director, Uaboi Agbebaku, the firm stated that its half-year results were majorly impacted by the devaluation of the naira which led to revaluation of foreign exchange obligations and higher input costs.

 

“Other factors were the effect of petroleum subsidy removal on consumers, a one-off redundancy exercise cost and the impact of the cash crunch that hit the country in the first quarter of the year. As a result, the company recorded an escalated loss after tax of N47 billion in the half-year,” Agbebaku added.

 

Firms under the food products subsector also suffered the same fate within the same period as Nestle Nigeria Plc recorded FX loss of N123.7 billion. This impacted its profits as the firm posted a pre-tax loss of N86.5 billion.

 

The losses contributed to wiping our Q1 profits, taking its half-year profits to N61.6 billion, one of the worst performances in years.

 

Cadbury Nigeria Plc recorded a massive loss before tax of N17.9 billion in the second quarter of 2023, compared to the N800 million profit reported at the same time in 2022 due to N20.9 billion write-down the company took as a result of the impact of the unification of the naira on its loans.

 

In the building materials subsector, one of the cement-producing giants, Dangote Cement Plc also incurred losses. It recorded N103.8 billion in FX losses. Due to the development, the company’s pre-tax profits fell 14 per cent to N93 billion.

 

The company’s half-year pre-tax profits stood at N239.9 billion, compared to N264.8 billion recorded in the corresponding period 2022.

 

Speaking on the challenge, a telecoms expert, Kehinde Aluko, said companies should brace up for more shocks and losses, “as this will be in a short time. The new policy will foster exchange rate stability and predictability. Previously, it was unclear how the central bank determined the exchange rate. This prompted speculative buying and selling.

 

“With the new policy, the value of the naira will be determined by market fundamentals. It will discourage the hoarding of foreign currencies. This may also increase supply, which will stabilise the exchange rate.

 

“This is good for the economy. What matters for economic growth and development is not the exchange rate itself but whether it is likely to change rapidly.”

 

On his part, the Chairman of the Association of Licensed Telecoms Operators of Nigeria (ALTON) Gbenga Adebayo, who said the challenge has been huge, stressed that the telecoms sector is always on the queue to access foreign exchange from the CBN.

 

He said the challenge of forex has impacted and slowed the expansion of telecoms services as it were.

 

Meanwhile, banks have embarked on fresh capital raising to hedge against emerging currency risks.

 

For instance, Fidelity Bank Plc is seeking shareholders’ approval to raise additional capital via issuance of 13,200 billion ordinary shares. This was disclosed in the notice of Extraordinary General Meeting signed by the Company Secretary, Ezinwa Unuigboje and filed on the Nigerian Exchange Limited. The company revealed it would raise the funds via a combination of public offer and a rights issue.

 

Also, FBN Holdings Plc has stated that it will raise funds via the creation of 8.974 billion Ordinary Shares at 50 kobo each by way of rights issue. Additionally, Jaiz Bank is seeking shareholders’ nod for private placement of 15.4 billion units of shares at N1 per unit.

 

Vice President of Highcap Securities Limited, David Adonri, said most multinational conglomerates in Nigeria don’t follow the rule that mandated organisation that borrows externally to earn its income in hard currency to enable such organisations to settle external obligations without facing currency risk.

 

According to him, these firms have continued to rely on imported inputs to service Nigeria’s domestic market, thereby contributing heavily to making the economy import dependent.

 

“Time has come for them to look inwards for their inputs otherwise, emerging market policies may chase them out of Nigeria. It is not likely that Nigeria will subsidise foreign exchange consumption again through the administrative allocation of forex at a nonmarket rate to anybody.”

 

Former Partner and Head, Tax and Regulatory Services at PwC Nigeria, Taiwo Oyedele, said: “As the gap in exchange rates widens, and the uncertainty regarding what else may be added to the ‘Not Valid for Forex’ list, the economy seems to be suffering from the pains of naira devaluation without deriving any of its benefits like higher tax revenue.

 

“The real issue is that there is rising inflation due to the high cost of imports; cost of goods and services increase because many cost items are incurred at black market rates while foreign currency revenue will be reported at the lower interbank rate resulting in lower tax payments.

 

“The only sustainable solution is to have a coherent monetary policy framework complemented by a robust fiscal policy. Otherwise it will be as unrealistic as hoping that a man standing on one leg will maintain his balance for a long time,” he said.

 

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