Market News

Wasiu Alli 

Nigeria’s fast moving consumer goods (FMCGs) sector was banking on the rare calmness of the naira and cooling prices to turn the tide of FX-induced record losses.

But with President Donald Trump’s sweeping tariffs that rattled global markets and stoked renewed pressure on frontier and emerging market currencies including the naira, the outlook appears to be dimming.

The Nigerian FX market has been negatively affected by offshore investors’ flight to safety as increasing domestic dollar demand put pressure on the naira. The currency fell 2.8 percent on Monday despite the Central Bank of Nigeria (CBN) injecting a total $321.7 million at two different trading sessions to shield the naira from Trump’s tariff fallout.

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“I had an optimistic outlook especially for the stability of FX which should be positive for the FMCG sector, however this recent Trump’s tariff seems to be changing the direction of things,” said Kemi Abiodun, a consumer goods research analyst at Lagos-based CardinalStone.

“If it goes on this way we might not see an impressive performance as estimated at the start of the year.”

With the 14 percent tariffs on imports, Nigeria risks capital flight as higher U.S. rates attract global investors, leading them to move their money from emerging markets like Nigeria to safer, higher returns in America.

For Africa’s most populous nation, this means increased demand for dollars, weaker naira, reduced availability of foreign currency. And this could intensify businesses’ struggle to import raw materials for production, jobs decline, and local prices increase.

Last year, Nigeria’s consumer goods firms reported a cumulative N1.33 trillion in FX losses following the implementation of a more market-driven exchange rate system that saw the naira plunged by 70 percent and melted down their earnings.

Companies such as Nigerian Breweries, BUA Foods, Dangote Sugar, Guinness and Nestle recorded N157.59 billion, N173.2 billion, N208.90 billion, N72.78 billion and N 290.70 billion in FX losses, primarily attributed to letters of credit and foreign-denominated loans.

While firms have implemented various strategies to manage FX volatility, such as replacing imported raw materials with local alternatives, front-loading inventories, exiting business segments with high forex exposure, and fully settling foreign-denominated loans as in the case of Nigerian Breweries and Guiness, an uncertain global economy raises concerns.

“Tariffs hamper international trade and can do a lot of damage to whole economies or important sectors like the FMCG,” said Samson Simon, Economics lecturer at Baze University, Abuja.

While the tariffs could help domestic producers as their products suddenly become more competitive, according to Simon, it would, in the long run, lead to shrinking of international trade, collapsing of capital markets and cuts in GDP growth figures.

But all is not yet doom. The FMCG sector may need to broaden its horizons in getting new markets by seeking out other economies or making their products appealing to hitherto non-consumers of such.

“This could not be done in the short term, however, so the best option is to approach the Americans to renegotiate new trade deals with lower to non existent tariffs and for instantaneous implementation,” Simon who heads an Abuja-based consultancy ARKK Economics and Data Limited said.