Analyst Describes How Nigeria Can Move From Forex-Induced Depression

Analyst Describes How Nigeria Can Move From Forex-Induced Depression

  • A financial analyst, Abdulmumin Ali, has listed three ways Nigerians can overcome the current inflationary pressures
  • The Abuja-based analyst said sound government policies and the creativity of Nigerians can bring the country out of its current forex woes
  • He stated that the country has begun to take positive steps by clearing forex backlogs which plagued the local currency’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.

Nigerians' resilience, energy, and creativity are three factors that will combine with solid government policy instruments to steer the country away from the depression and runaway inflation created by the depreciation of the Naira between 2023 and 2024. 

These were the views of Abuja-based financial and public policy analyst Abdulmumin Ali, who spoke on the possibilities of the economy's recovery from runaway inflation, which hit a high of 33.2% by the end of the first quarter of 2024.

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Naira's performance, financial analyst
Analyst lists three ways Nigeria can overcome its economic challenges Credit: Bloomberg/Contributor
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The naira to rebound

Ali, who is also the Managing Partner of QL Resources, called on Nigerians to remain optimistic about the economy, saying that the foreign exchange instability occasioned by last year's fall in the exchange rate of the Naira will likely not be witnessed in much of 2024, thus giving rise to positive returns by most companies. 

Speaking mainly on the low results posted by most of the multinational companies operating in Nigeria, he expressed his optimism that there would be a resurgence in the performance of the companies.

Citing an example with Nigerian Breweries, which was among the businesses that were heavily affected by the naira misfortunes at the forex market, Ali said the bold strategies that have already been made by the company towards recovery is a sign that the rest of the economy would reflate soon.

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“I am aware that Nigerian Breweries, for instance, is approaching the capital market to raise N600 billion through Rights Issue. If successfully raised, this sum will not just reflate the company but also set it on the part of a new trajectory by offsetting the debts associated with last year's bleak balance sheet records.

Most of its dollar-denominated credit lines might be converted to Naira, thereby staving off exposure to the vicissitudes of foreign exchange fluctuations. These are positive steps that would engender quick recovery,” he stated.

He commended the company's majority shareholders for restating their commitment to the Nigerian market by opting to raise 50% of the N600 billion sought through the Rights Issue, insisting it was a good sign that the fundamentals of the Nigerian economy remain positive.

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“Heineken made a strong statement of its faith in this economy by opting to take up such a significant volume of the offer. What they did is a sign of confidence in the Nigerian economy and the message will be heard across the investment capitals of the world that Nigeria remains a fertile market for investments despite temporary setbacks,” the analyst said.

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While further analysing the books of Nigeria’s largest brewer, Ali said the company would have returned impressive results but for the steep fall of the Naira.

He said:

“If you examine the books of the Nigerian Breweries with a critical eye, you will see that its records were only undone by the steep fall in the value of the Naira over six months starting from July to December 2023. However, this company recorded a gross revenue increase of 8.9% from N550.6b in 2022 to N599.6b in 2023, while the Cost of Sales also increased by 14.7% from N337.3b to N387b over the same period. This led to a 0.34% shrinkage in Gross Profit over the year. 

According to the annual reports, the spike in the cost of sales was driven primarily by Raw Materials, consumables, and Transportation costs. These variables are expected to remain within manageable limits during the 2024 business year and would enable the company to return to profitability,” he said.

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Ali commended the company for taking immediate steps to return to profitability and said the speed of response has reassured stakeholders that the business is prepared to absorb the shocks of the past year and return to profitability.

“If you look at Nigerian Breweries' 2023 annual result, for instance, the company performed well on most critical performance indicators but was shaken off its profit path by the external factor of naira devaluation.

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For example, this company recorded a significant growth of more than N1 billion in assets, from N621 billion in 2022 to N797 billion in 2023. It also made substantial savings in the marketing side of the business, spending N51 billion in 2023 as against N57 billion in 2022. 

Given all other factors, the company would have made more profits in 2023 than in 2022, but these were undone by the rapid decline in the value of the Naira between August and December 2023,” he stated.

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The Central Bank of Nigeria recently cleared the backlog of foreign exchange obligations. As we can see, the Naira is beginning to strengthen against the US dollar and other major currencies. These steps being taken by the CBN will restore confidence in the forex markets and ensure stability, meaning that Nigerian Breweries should return to its pre-2023 levels in terms of profitability by the close of this year,” he stated.

Naira crashes again in all markets reported that the Nigerian currency weakened in all the markets, with the black market being the most brutal hit.

On Friday, April 19, 2024, the parallel market weakened by the most in over a month, ending a massive rebound from early March.

In the black market, the naira traded for N1,230 per dollar on Friday, April 19, 2024, declining by 17% compared to the N1,050 it traded the day before.

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