The Nigerian foreign exchange market has been under severe pressure in recent months as the demand for dollars outstrips the supply from the Central Bank of Nigeria (CBN) and other sources. This has resulted in a sharp depreciation of the naira against the dollar, which has increased the cost of imports and eroded the profits of many businesses that rely on foreign exchange.
According to a report by BusinessDay, some of the top companies listed on the Nigerian Stock Exchange (NSE) lost a whopping N656 billion in the first half of 2023 due to the adverse impact of the forex market’s volatility on their earnings. The report analysed the financial statements of 20 companies across different sectors, such as banking, oil and gas, consumer goods, telecommunications, and cement.
Some of the companies that recorded significant exchange rate losses include MTN Nigeria, which lost N121 billion; Dangote Cement, which lost N48 billion; Guaranty Trust Bank, which lost N16 billion; and Zenith Bank, which lost N15 billion. These losses reflect the depreciation of the naira from an average of N379 per dollar in 2022 to an average of N485 per dollar in 2023, according to abokiFX.
The CBN has been struggling to stabilise the forex market and curb inflation, but its efforts have been hampered by several factors, such as low oil prices, weak foreign reserves, low foreign investment inflows, and security challenges. The CBN has also been accused of operating multiple exchange rates, which create distortions and inefficiencies in the market.
Some analysts have called for a more flexible and unified exchange rate regime that would reflect the true value of the naira and attract more foreign exchange into the economy. However, others have warned that such a move could trigger further inflation and devaluation, which could worsen the plight of businesses and consumers.
The forex market situation is expected to remain challenging in the second half of 2023, as the demand for dollars is likely to increase due to seasonal factors such as school fee payments and festive spending. The CBN will have to balance its objectives of maintaining exchange rate stability and price stability while also supporting economic growth and recovery.