Guinness Nigeria Plc, a subsidiary of Diageo Plc, is facing challenges in obtaining dollars to repay its foreign-currency loans despite the Nigerian government’s recent liberalization of the foreign-exchange market. The liberalization was aimed at attracting inflows and boosting dollar supply to revive Africa’s largest economy. However, the increased demand for dollars has led to limited supply, causing difficulties for Nigerian companies with significant dollar debts.
The Nigerian government allowed the naira to trade freely in June, resulting in a depreciation of around 40% against the dollar. However, the supply of dollars has not kept pace with demand, leading to significant currency-related losses for companies with dollar-denominated debts.
Guinness Nigeria Plc declared a loss of N18.2 billion in 2023, compared to a profit of N15.7 billion in the previous year, primarily due to increased finance costs resulting from the currency devaluation. The company expressed its intention to pay off its dollar-denominated loans to reduce its vulnerability to currency fluctuations, but it is currently unable to do so due to the shortage of dollars.
Finance and Strategy Director, Emmanuel Difom, stated that the company has sufficient cash in naira to pay off its loans but requires access to hard currency. The company is exploring alternative strategies, such as substituting imported raw materials with locally produced ones and expanding exports, to boost dollar earnings and reduce dependence on external sources for foreign currency.
The Nigerian forex market has seen some offers for dollars, with rates ranging between N800 and N850 per dollar, but the supply is not sufficient to meet the demand. Difom expressed optimism that liquidity would improve in the coming months, stressing that dollar availability is the main issue.
Guinness Nigeria’s struggle to obtain dollars highlights the challenges faced by Nigerian companies with significant foreign-currency obligations and underscores the importance of a robust and stable foreign-exchange market to support the country’s economic growth and stability. As the company navigates the currency volatility, it seeks a favorable environment with increased dollar liquidity to manage its foreign-currency obligations effectively.