Some of Nigeria’s leading companies incurred a combined forex loss of N1.8 trillion in the financial year 2023.
This is according to information contained in the financial statements of these companies and collated by Naijaonpoint.
The size and magnitude of the loss were so significant that it effectively wiped out the shareholder funds of some companies, forcing mega restructuring for others.
The staggering losses were triggered by the devaluation of the naira following the Tinubu administration’s forex unification policy launched in June 2023.
Following a series of devaluation the naira closed the year at an official exchange rate of N907.11/$1 compared to N461.5/$1 at the start of the year.
This led to massive foreign currency losses incurred by most Nigerian businesses with dollar denominated obligations when translated in local currency.
According to the data seen by Naijaonpoint, the losses cut across several sectors such as consumer goods, telecommunications, and cement production.
MTN Nigeria topped the list with a combined forex loss of about N740.7 billion, representing 39.7% of the total forex losses incurred by the companies under review.
A cursory review of the financial statements of the companies under review suggests the losses stemmed from the forex loans carried by the companies over the years.
Some of the losses were also not “realized,” according to explanatory notes from some of the companies in question.
Naijaonpoint spoke to Olumuyiwa Adebayo, the Chairman, Committee of Finance Expert (CoFE), Nigeria Employers’ Consultative Association (NECA), who opined that addressing these issues requires “coordinated policy responses aimed at stabilizing the currency, enhancing the business environment and supporting economic sectors most at risk” from currency fluctuations.
According to Mr. Muyiwa Adebayo, companies with significant foreign currency debt exposure face heightened risks when the naira depreciates.
Mr. Adebayo also noted the impact of currency instability on investment. Uncertainty regarding the financial health of major companies and currency stability might deter investment, causing both domestic and foreign investors to adopt a ‘wait and see’ approach.
This hesitation can delay or reduce the capital inflows that are essential for economic growth. Moreover, companies burdened by FX losses might freeze hiring or reduce their workforce to cut costs, which could adversely affect employment levels.
According to Samuel Oyekanmi, a Research and Insight Associate at integrated financial services fiem, Norrenberger Financial Group, Nigerian businesses have faced considerable challenges due to substantial foreign exchange (FX) losses, mainly due to the depreciation of the naira against major currencies.
Oyekanmi also highlighted the broader impact on shareholders, who have traditionally relied on dividend payouts from these businesses.
Oyekanmi also highlighted the broader impact on shareholders, who have traditionally relied on dividend payouts from these businesses.
This financial strain has contributed, at least in part, to the recent downturn observed in the Nigerian equities market.
Further discussing the ramifications, Oyekanmi mentioned that these losses might deeply affect the operational frameworks of businesses, potentially leading to economic contractions.
This distinction implies that the losses are not yet tangible and could potentially be recouped in subsequent periods.