While Nigerian companies are grappling with the impact of Naira’s devaluation on their bottom lines, chief financial officers (CFOs) have said that to mitigate the impact, companies will have to increase local sourcing of materials and ramp up exports.
This was discussed at Lagos Business School CFO Leadership Summit 2024 themed: ‘The CFO as Strategic Architect – Maximizing the CEO-CFO Synergy’ in Lagos.
“The biggest way to solve FX risk as a company is looking for ways to manage your business by divergence into non-FX driven input or output materials.So it’s either you’re exporting or your input material are local substitutions and those are hedges you’ll continue to see,” Boye Olusanya, CEO, Flour Mills of Nigeria Plc said.
He said last year there were big hedging opportunities that are no longer available because there aren’t the same variety of options formally available.
“So there’s going to be a big drive for a huge export of local commodities. What we should all be pushing for is value added export,” Olusanya said.
There is a continuous drive for us to look for some level of sustainable way of importing raw material.
And the solution we have is backward integration to avoid import risk and FX volatility.
In June, the apex bank merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The liberalisation of the FX regime as part of measures to revive the economy led to a large devaluation of the naira.
The currency depreciated from N463.38/$ to N1,560.6/$ as of today and at the parallel market, the naira depreciated to 1570/$ from 762/$. It had reached record low of N1,800/$ before gaining.
The continued decline in the country’s foreign exchange reserves has caused many big Nigeria companies to declare losses in their full year earnings.
Alex Osho Group COO, Waltersmith Group said that Nigeria heading instruments are not adequate enough to protect companies from fx crises.
“We have hedging instruments in Nigeria, but the issue with it is the depth and liquidity of that market while you can easily adopt this tools in the US and Europe to counter some of the risk you face in the FX environment there are limitations to use those tools in Nigeria because there is no liquidity or convertibility to do so,” he said.
Osho said that companies that posted losses last year were helpless to a large extent.
He said that companies that have a natural hedge tend to do better, “ natural hedge mining their revenue sources matches their income sources. Such that you can match naira for naira and dollar for dollars.”
“That’s why many companies are looking for ways to diversify their FX sources by having an export route. Without that it’s limited and clumsy,” Osho said.
He said that banks which declared FX profit have a bit of damage done in their balance sheet, “ they have their loan books blown up and that has implications for their capital adequacy.”
“What we expect is that in the long run we have a market that’s liquid enough and has the tools that we can adopt to manage this risk,” Osho said.
Wole Adeniyi CEO, Stanbic IBTC Bank represented by Olu Delano, Executive Director, Personal and Private Banking Nigeria also mentioned that there’s not enough products to address the devaluation.
“So we just adapt and keep moving on, but you have to be able to make it known at board meetings that business has this exposure and what the likely outcomes are,” he said.
