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    HomeBusinessEconomyManufacturing Sector Faces Severe Challenges with 400% Increase in Forex Losses

    Manufacturing Sector Faces Severe Challenges with 400% Increase in Forex Losses

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    By Milcah Tanimu

    The manufacturing sector in Nigeria is grappling with a significant increase in net foreign exchange losses, reaching N466 billion in the nine months ending September. This surge represents a staggering 400% rise compared to the N93.219 billion loss recorded in the same period the previous year. The unfavorable foreign exchange (forex) market regime, coupled with other challenges like the removal of oil subsidies and the Russia/Ukraine war, has created a difficult operating environment for manufacturing companies.

    The financial reports of 17 top manufacturing companies listed on the Nigerian Exchange Limited (NGX) reveal the extent of the sector’s struggle. While the companies experienced a growth in gross earnings by 23.4% to N4.4 trillion in the first nine months of 2023, their combined Profit Before Tax (PBT) declined by 24.6% to N505.148 billion. This decline is attributed to multiple pressure points eroding their financial stability, including forex revaluation losses.

    Manufacturers have faced increased costs in producing essential consumer goods due to inflation and rising prices of raw materials. In response, companies have raised product prices, leading to reduced consumer patronage as the purchasing power of individuals has been eroded by inflation.

    The forex challenges have led to losses in foreign exchange revaluation, impacting profitability. Major manufacturing firms, including Nestle Nigeria, Dangote Cement, Nigerian Breweries, International Breweries, BUA Foods, BUA Cement, Cadbury Nigeria, GlaxoSmithKline, and others, reported significant forex revaluation losses, contributing to declines in their financial performance.

    The devaluation of the Naira against the US Dollar, which plummeted from N448.04/US$ at the beginning of the year to N832.32/US$ by the end of September, further exacerbated the situation. Multinational companies in the manufacturing sector have been particularly affected, with some announcing plans to discontinue manufacturing operations in Nigeria due to the challenging operating environment.

    The forex losses pose threats to the manufacturing companies’ existence, leading to layoffs, production cutbacks, and potential exits from the market. Analysts suggest that the losses will continue to impact companies until they implement measures such as hedging and repricing earning assets to recover from the losses.

    Government intervention and engagement with manufacturers are seen as crucial to addressing the challenges faced by the sector and preventing further negative economic consequences. As companies pass on the increased costs to consumers, there are concerns about the potential impact on inflation and a slowdown in economic activity.

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