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Nigerian Firms Squeezed as Devaluation hits Dollar Loans

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Nigerian firms are beginning to feel the impact of the devaluation of the domestic currency on their income statements as dollar denominated debts and interest payments balloon.

Guinness Nigeria which just released earnings results for the period ending June 2021, had its net finance costs remaining on a similar level as last year despite its lower debt position.

The consumer goods firms net finance costs came in at N4.1 billion for the 2021 period, compared to N4.2 billion in 2020.

It comes despite loans and borrowing falling by 29.8 percent to N15.99 billion in the period.

“This was due to the devaluation of Naira impacting the foreign currency denominated trading balances,” Managing Director/CEO, Guinness Nigeria Plc, Baker Magunda said.

MTN Nigeria in its financial statements as at June 2021 said there had been a major impact of forex deterioration on the business due to the increase in the NAFEX rate from N387 to around N410.66 to $1.

“There is an ongoing effort to re-denominate some categories of foreign denominated expenditure to local currency to reduce exposure to exchange rate volatility,” MTN said.

MTN Nigeria carried about $133.7 million of dollar denominated loans on its books as at June 2021.

Most Nigerian firms with dollar loans applied NGN/USD exchange rate of about N387/$1, in the conversion of balances as at year end 2020, suggesting more impact on the balance sheet from market risk by the end of the current 2021 financial year.

The Central Bank of Nigeria’s foreign exchange reserves have also been under pressure this year and are down some $2 billion since mid-April.

The pressure on the Nigerian currency is adding urgency for the CBN to reform its foreign-exchange market and ease capital controls.

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