Multinationals Groan As Dollar Loans, FX Scarcity Grounds Operations… Foreign Reserves Down 790m

By Obinna Amaobi

Businesses that took dollar loans are counting their losses as forex scarcity and naira depreciation continue to impact negatively on their operations.

The ongoing reforms in the forex market, which saw the Central Bank of Nigeria (CBN) unify multiple exchange rates into the Investors’ and Exporters (I&E) window have continued to impact operations of several multinational businesses in the economy.

The multinationals are lamenting the impact of persistent dollar scarcity triggered by inadequate supply from key economic agents and the CBN.

Diageo Plc’s Nigeria unit said it’s struggling to obtain dollars to pay back foreign-currency loans, despite the government’s liberalization of the foreign-exchange market to help to revive the economy.

Nigeria’s new government in June allowed the naira to trade freely to attract inflows and boost dollar supply. Although the liberalization has led the local currency to depreciate around 40 percent against the dollar, supply of the greenback is still limited relative to demand.

As a result, Nigerian companies with significant dollar debts have suffered significant currency-related losses.

The Diageo subsidiary, Guinness Nigeria Plc, declared a loss of N18.2 billion for 2023 compared to N15.7 billion-naira of profit in the previous year after its finance costs soared on the currency devaluation.

Finance and Strategy Director, Emmanuel Difom, said it wants to pay off the loans but can’t at present owing to dollar shortage.

“If liquidity improves, our plan is to actually pay off everything we owe on hard currency” to reduce our vulnerability, he said Friday on an investor call in Lagos. “We have sufficient cash in naira to pay off and all we need is access to hard currency.”

The company is substituting imported raw materials with locally produced items and also expanding exports to boost dollar earnings to curb dependence on external sources for foreign currency,” Difom told Bloomberg.

At the Nigerian forex market, “we have seen a little bit of offers, at rates ranging between N800 and N850 a dollar, but not a big supply,” he said. “We expect liquidity to improve in the next couple of months. The rate is not the problem; we need dollar availability.”

Also, GlaxoSmithKline Consumer Nigeria Plc has announced plans to shut down its operations in the country.

The Company Secretary, Frederick Ichekwai, informed the Nigerian Exchange Limited about the move.

The company, whose primary activities include marketing and distribution of consumer healthcare and pharmaceutical products, said that its parent company, GSK Plc UK, had revealed its intent to cease commercialisation of its prescription medicines and vaccines through its Nigerian subsidiary.

Part of the statement read, “In our published second quarter results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria Plc of its strategic intent to cease commercialization of its prescription medicines and vaccines in Nigeria  through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products.”

The company said it will be briefing its employees, whom  it promised to “Treat fairly, respectfully and with care, meeting all applicable legal and consultation requirements.”

In responsibility to shareholders, the statement said that the “Board is conscious that shareholders will have many questions; we have been working assiduously with our professional advisors to agree on the next steps and we will be shortly submitting to the Securities and Exchange Commission, a draft Scheme of Arrangement which may, if approved, see shareholders other than GSK UK, receive an accelerated cash distribution and return of capital.”

Analysts said part of the GlaxoSmithKline challenge was difficulty in accessing forex for its operations and other policy hitches in the economy.

The Acting CBN Governor, Folashodun Shonubi, admitted that there was forex demand pressure in the market during the just concluded Monetary Policy Committee (MPC) meeting in Abuja.

He said: “Gross external reserves improved marginally to US$33.97 billion as at July 20, 2023, from US$33.75 billion in June 2023, as accretion to external reserves remains weak while foreign exchange demand pressures persist.”

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