Capital market operators are sounding the alarm as the Nigerian naira experiences a significant free fall, potentially impacting dividend payouts for 2023.
Quoted companies burdened with foreign liabilities or heavily reliant on imported inputs may face a downturn in shareholder dividends.
The recent depreciation of the naira, reaching a record low of N1,348.63 per dollar on Monday, is attributed to the harmonization of exchange rates and the ensuing pressure on profit margins in the current economic climate.
Despite the Central Bank of Nigeria’s (CBN) additional release of funds to address the backlog of verified foreign exchange transactions, concerns persist.
Companies with substantial net foreign assets, especially those in dollars, are predicted to see abundant profits, potentially leading to robust increases in dividends from their 2023 accounts.
On the flip side, companies burdened with foreign liabilities may struggle to maintain shareholder dividends, raising the possibility of tapping into revenue reserves or foregoing dividends altogether.
The implications extend beyond dividends, with experts cautioning that businesses heavily reliant on imported inputs may face challenges as profit margins come under pressure.
However, companies predominantly sourcing inputs locally or offering products with elastic demand may weather the storm more effectively, potentially maintaining or surpassing previous dividend payouts despite the naira’s depreciation.
Executives in the industry are expressing concerns about the ripple effects of the naira’s decline, emphasizing challenges for import-dependent companies facing elevated foreign exchange rates.
The surge in the foreign exchange rate has led to increased production input costs, subsequently raising prices of finished goods and contributing to inflation in the broader economy.
Sectoral vulnerabilities are becoming apparent, with Consumer Goods and Industrial Sector companies expected to bear the brunt of the turmoil.
Challenges such as the erosion of disposable income and difficulties in determining product pricing amidst fluctuating FX rates further compound the strain on these sectors.
