NIGERIA WILL OVERCOME ITS FOREX-INDUCED MALAISE WITH RESILIENCE AND CAREFUL PREPARATION.

Nigerians' tenacity, dynamism, and inventiveness combined with effective government policy tools would help guide the nation away from the depression and uncontrollably high inflation brought on by the naira's depreciation between 2023 and 2024.

Public policy researcher Abdulmumin Ali expressed these opinions when discussing the likelihood of the economy recovering from runaway inflation, which peaked at 33.2 percent by the end of the first quarter of 2024.

Ali, who is also the managing partner of QL Resources, urged Nigerians to maintain their optimism about the country's economy, stating that most businesses will likely see positive brought on by the naira's decline last year will probably not recur.

Speaking specifically about the poor performance reported by international corporations doing business in Nigeria, he voiced his optimism that the companies' performance will improve.

Giving Nigerian Breweries as an example, which was one of the companies worst impacted by the naira's woes on the forex market, Ali claimed that the company's audacious recovery plans are an indication that the rest of the economy will soon rebound.

“I am aware that Nigerian Breweries, for example, is attempting to raise N600 billion through a rights issue by going to the capital market. If this amount is successfully raised, it will not only relaunch the company but also put it on a new course by balancing the debt. Additionally, I've read that the majority of its credit lines denominated in dollars may be converted to naira, protecting it from the vagaries of FX changes. These are constructive actions that would promote a speedy recuperation,” he said.

By choosing to raise half of the N600 billion requested through the Rights Issue, the company's majority shareholders demonstrated their renewed commitment to the Nigerian market, which he praised. He insisted that this was a positive indication that the fundamentals of the Nigerian economy are still strong.

Heineken's decision to accept such a sizable portion of the offer was a clear indication of its confidence in this economy. “What they did is a sign of confidence in the Nigerian economy, and the message that Nigeria remains a fertile market for investments despite temporary setbacks will be heard across the investment capitals of the world,” the analyst added.

After doing a thorough analysis of the Nigerian brewer's finances, Ali stated that if not for the sharp decline in the value of the naira, the company would have achieved remarkable outcomes.

If you look closely at the Nigerian Breweries' books, you'll notice that the sharp decline in the value of the naira over a six-month period, from July to December 2023, was the sole thing that destroyed its records. However, during the same year, this company's gross revenue climbed by 8.9%, from N550.6b in 2022 to N599.6b in 2023, while its cost of sales increased by 14.7%, from N337.3b to N387b. The result was a 0.34% decrease in gross profit for the entire year.

According to information from the yearly reports, the cost of transportation, consumables, and raw materials was the main factor contributing to the increase in the cost of sales. According to him, these are the variables that should stay within reasonable bounds in the 2024 fiscal year, allowing the business to earn a profit again. He applauded the company for moving quickly to get back to a profitable position and stated that the quickness of the response has given stakeholders confidence that the company is ready to withstand the shocks of the previous year and get back on track.

If you look at Nigerian Breweries' 2023 annual result, for example, the company did well on most essential performance parameters but the external element of the naira devaluation knocked the company off the profits path. For instance, the assets of this corporation increased significantly by almost N1 billion, from N621 billion in 2022 to N797 billion in 2023. Additionally, it significantly reduced its marketing expenses, paying N51 billion in 2023 as opposed to N57 billion in 2022. This indicates that the corporation would have generated more money in 2023 than it did in 2022, barring any other circumstances, but the sharp drop in the value of the naira between August and December 2023 reversed these gains, he said.

However, the Nigerian Central Bank has recently paid off its foreign exchange debt, and the Naira is starting to appreciate vs the US dollar and other major currencies. By the end of this year, Nigerian Breweries' profitability should have returned to pre-2023 levels thanks to the CBN's actions, which will also assure stability in the forex markets, he said.