Multinationals corporation and other big capitalized companies quoted on the Nigerian Stock Exchange, NSE, incurred heavy losses on Monday as a result of the delay in the roll out of the new flexible foreign exchange policy.
The stock market had recorded a massive rally following the announcement by the Central Bank of Nigeria, CBN, of its plan to introduce a flexible foreign exchange regime.
But the bullish trend gave way to a massive bear run which brought down total market capitalization to N9.3 trillion, Monday, from N9.7 trillion as at May 25, 2016, a day after the CBN announcement, with the blue chips accounting for about 80 percent of the total losses.
Top multinationals in the real sector, especially the big brands have taken similar steps since 2015 to retain their market share and brand equity at huge cost. Berger Paints Nigeria Plc has attributed the drop in their financial performance for the first quarter ended March 31, 2016 to foreign exchange scarcity.
For Unilever Nigeria Plc, the major drag to performance in its full year 2015 results released earlier this year was the massive jump in finance cost, up 66 percent year-on-year despite 37.5 percent drop in borrowings in the year.
According to financial analysts at Afrinvest West Africa, “Unilever remains highly levered as 62.9 percent of its full year 2015 operational profit went into finance cost.
The Managing Director, Mr Peter Folikwe, stated at the Nigerian Stock Exchange that “margin drop largely as a result of increase in raw material prices and scarcity of foreign exchange as we have to largely resort to local sourcing of raw materials at exorbitant price”.
Currency restrictions imposed by the Central Bank of Nigeria, CBN, were hindering the big companies from procuring the foreign exchange needed to bring in raw materials, says Guinness Nigeria Plc.
“Foreign currency capacity has been a major issue for us and that has put a strain on our business, in particular, liquidity has been a major challenge”, Managing Director, Peter Ndegwa, stated.”
The survey conducted by PricewaterhouseCoopers, PwC, showed that over 60 percent of companies in Nigeria recorded huge declining sales/revenue as a result of the foreign exchange rationing policy.
The report, commissioned by the Lagos Chamber of Commerce and Industry, and unveiled in Lagos by the President, LCCI, Dr. Nike Akande, and the Regional Managing Partner, West Africa, PwC, Mr. Uyi Akpata, revealed that 42 percent of the companies had been implementing aggressive cost-cutting measures, while 18 percent were already sacking staff.