Hedging against Nigeria’s FX volatility

Nigeria’s Organised Private Sector is calling for a comprehensive audit of the Central Bank of Nigeria’s Forex backlog payments stressing that some commercial banks are yet to honour FX requests which have lingered over an extended period. Emmanuel Onasami, the Lead Partner at Cardinal Professional Services, recently joined CNBC Africa to shed light on the impact of this situation, particularly on tax revenue and business growth in Nigeria. Onasami commended the efforts of the Central Bank of Nigeria (CBN) in clearing the FX backlog of over $7 billion but highlighted the need for a detailed audit and reconciliation exercise to address the concerns of commercial banks that are yet to honour FX requests. He emphasized the importance of economic stability and predictability in fostering a conducive environment for businesses and investors. As Nigeria grapples with forex fluctuations and economic instability, the impact is felt across various sectors and has significant implications for tax revenue and business profitability. The fluctuations in forex rates have adversely affected businesses, particularly those in non-essential sectors who are unable to pass on additional costs to consumers, leading to decreased revenue and profitability. The import-dependent nature of Nigeria's economy has further amplified the impact of forex fluctuations on production costs, thereby influencing corporate income tax revenue. Recent data from the National Bureau of Statistics (NBS) showing a 35% decline in corporate income tax in the fourth quarter underscores the challenges faced by businesses in navigating the forex volatility. Companies listed on the Nigerian Stock Exchange, such as Nestle, have reported substantial losses attributed to forex fluctuations, highlighting the pervasive nature of the issue. Despite the gradual rebound of the Naira at the official window, concerns linger regarding the sustainability of this improvement. Onasami emphasized the need for a holistic approach by the government to diversify the economy and boost export earnings, thereby stabilizing the forex market. While acknowledging the CBN's efforts to attract foreign portfolio investment through policy measures, he underscored the importance of prioritizing economic stability over short-term fluctuations. The path to a more stable forex market and stronger economic fundamentals requires sustained efforts and strategic policy decisions to enhance investor confidence and support business growth in Nigeria.