Businesses in Nigeria, Africa’s largest economy, have begun cutting down on their dollar exposure to better manage risk and profitability following the persistent depreciation of the Nigerian Naira since President Bola Ahmed Tinubu took office.
The Nigerian Naira lost over 8% on Wednesday to close at N1,699 against the US dollar, according to FMDQ data obtained by Investors King.
Analysts are now projecting a further decline to N1,700-N1,800 per dollar for the local currency by the end of the fourth quarter.
This negative outlook is prompting businesses with dollar debt to reduce their exposure to better manage financial obligations, especially amid rising borrowing costs in naira.
“One is still seeing volatility in the naira, so there’s still limited confidence in the currency,” said Muyiwa Oni, an analyst at Stanbic IBTC Bank Plc. “The biggest point is that as an institution, you can’t control naira movement, but you can mitigate your risks.”
Last month, Nigerian Breweries announced plans to pay off a $197 million foreign debt to rein in interest expenses and other costs.
Similarly, Ecobank Nigeria stated it was working on converting a $200 million dollar loan to naira to reduce its risk exposure after reporting a 77% decline in pre-tax profit due to naira devaluation.
In July, MTN Nigeria also revealed it had reduced its letters of credit obligations to $100 million from $417 million in December.
The ongoing naira woes have already prompted multinationals, including Unilever Plc, Procter & Gamble Co., GSK Plc, Sanofi SA, and Diageo Plc, to either reduce their Nigerian exposure or exit the market completely by selling to local firms.