60% of Top 30 Companies in Nigerian Market Rely on Foreign Currency
Economic dislocation has failed to heal in Nigeria as the foreign exchange (FX) crisis continues to threaten some companies ability to stand tall in the business environment.
The market is faced with near corporate distress as major listed companies have negative shareholders. In an update, CSL Stockbrokers Limited said about 60% of the top 30 companies listed on the Nigerian Exchange have foreign exposures.
The latest data from the National Bureau of Statistics suggests that the manufacturing sector continues to grapple with economic challenges. In the Q2 2024 Nigeria GDP report, the manufacturing sector’s performance remained relatively weak. According to the National Bureau of Statistics,
Analysts at CSL Stockbrokers, in its latest update said the manufacturing sector in real term grew by 1.28% year on year in the second quarter of 2024. This represents a decline when compared to its growth rate of 2.2% in Q2 2023 and 1.49% in Q1 2024.
“This contraction is largely attributed to ongoing macroeconomic issues, including high inflation, elevated interest rates, foreign exchange (FX) shortages, and the persistent devaluation of the naira”, CSL Stockbrokers said. According to the report, the sector’s contribution to GDP fell from 8.62% in Q2 2023 to 8.46% in Q2 2024.
In Q2 2024, this sluggish growth reflects the ongoing economic difficulties in the sector, including high production costs, foreign exchange shortages, and elevated inflation, all of which have hindered its recovery.
Analysts noted that Nigeria’s manufacturing sector has experienced very modest growth over the past two years, adding that since 2023, the sector has been hit by three major challenges.
First, the persistent devaluation of the naira and ongoing foreign exchange (FX) shortages have severely limited the sector’s ability to import essential materials. CSL hinted that approximately 60% of companies listed on the NGX30 rely heavily on FX for imports or to service foreign debt.
Analysts said this situation has been especially damaging to the fast-moving consumer goods (FMCG) segment, which makes up more than half of the manufacturing sector.
Many FMCG companies have reported negative equity positions as a result of the currency devaluation, according to CSL Stockbrokers. Also, the investment firm said record-high interest rates have driven up the cost of borrowing, further increasing financial pressures on manufacturing companies.
Analysts added that inflation has exacerbated the situation by eroding consumers’ purchasing power, leading to reduced sales volumes and lower production output.
Reforms and other policies which triggered market pressure has been damaging for some companies. The tough macroeconomic conditions have led to several companies leaving Nigeria, CSL said.
In the first six months of this year, some manufacturing companies, including PZ Cussons Nigeria PLC, Kimberly-Clark Nigeria, and Diageo PLC have all exited the country, adding to the several multinationals that left in 2023.
Despite the slowdown in the growth of the sector, analysts at the firm believe the sector will see marginal improvement in the second half of the year, with a forecasted growth rate of 3.32 % for 2024.
This optimism is largely attributed to the scaling up of operations at the Dangote refinery, though this has been delayed significantly, CSL Stockbrokers stated. #60% of Top 30 Companies in Nigerian Market Rely on Foreign Currency
