Manufacturing Sector Struggles With Soaring Forex Losses, Hits N466 Billion in Nine Months

The Nigerian manufacturing sector faces a significant setback as it contends with a staggering 400% surge in net foreign exchange losses, totaling N466 billion in the nine months leading up to September. This surge underscores the profound impact of the foreign exchange (Forex) market regime on the industry.

Operators within the sector attribute the escalating forex losses to a combination of challenges, including the removal of the oil subsidy, the Russia/Ukraine war, and other adverse developments. The sector is now grappling with multiple pressure points, primarily stemming from exchange rate revaluation losses.

Financial reports from the top 17 manufacturing companies listed on the Nigerian Exchange Limited (NGX) reveal a stark contrast. Despite a 23.4% increase in combined gross earnings to N4.4 trillion in 9M’23, the companies experienced a 24.6% decline in combined Profit Before Tax (PBT), plummeting to N505.148 billion from N670.089 billion in 9M’22.

The inflationary pressures on operating costs have led to a rise in consumer goods prices, affecting essential commodities such as food, beverages, toiletries, and medicines. This, in turn, has resulted in decreased consumer patronage, exacerbating the challenges faced by the manufacturing sector.

Blue Chips in Distress: Multinationals Hit Hard by Forex Revaluation Losses

Prominent manufacturing companies, particularly blue-chip multinationals, have borne the brunt of forex revaluation losses. Nestle Nigeria, Dangote Cement, Nigerian Breweries, International Breweries, BUA Foods, BUA Cement, Cadbury Nigeria, GlaxoSmithKline, Lafarge Cement, Unilever Nigeria, Vitafoam, Okumu Oil, Guinness Nigeria, Notore Chemical, Nascon Allied, and Dangote Sugar all recorded substantial losses.

Nestle Nigeria, for instance, faced a significant forex revaluation loss of N127.5 billion, resulting in a loss before tax of N56.7 billion. Dangote Cement, while experiencing a forex revaluation loss of N99 billion, surprisingly recorded a 20.5% rise in profit to N404.9 billion.

Multinational companies like GlaxoSmithKline, Procter & Gamble, Unilever Nigeria, and others have announced plans to discontinue manufacturing operations in Nigeria, citing the harsh operating environment.

Analysts Weigh In on Economic Impact and Solutions

Analysts express concern over the economic implications of these losses, anticipating a continued elevation in inflation and a deceleration in output growth. Tajudeen Olayinka, CEO of Wyoming Capital and Partners, emphasizes the need for affected companies to implement measures like hedging and repricing of earning assets to recover losses.

David Adonri, Executive Vice Chairman of HIGHCAP Securities Limited, attributes the surge in forex losses to the Naira’s depreciation following the deregulation of the foreign exchange market. He warns that these losses pose a threat to the existence of many manufacturers and could lead to layoffs and scarcity of products.

Looking ahead, analysts suggest that the government should engage with manufacturers to address the threat to their existence. Stabilizing the forex market and providing incentives for critical manufacturing businesses are seen as crucial steps to support the recovery of affected companies and prevent further economic downturn.