How New Exchange Rate Policy Will Unshackle The Consumer Goods Industry

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The new foreign exchange regime adopted by the Central Bank of Nigeria (CBN) will unshackle consumer goods firms that have hitherto been in bondage as restrictions prevented them from accessing dollars to import raw materials and pay suppliers.

Godwin Emefiele, the governor of the apex bank, last week reopened the interbank foreign exchange market and have the naira, completely determined by the market forces.

The Naira had been held at the N197-N199 since mid 2015, a policy that caused capital flight as investors fret that the currency may be overvalued and an abrupt devaluation could culminate in loss of significant investment.

But with the new Forex regime kickstarting today, and with its attendant of liquidity flow in the system, consumer goods firms that had been pained by the old policy will have the leeway to  embark on the  desired expansion drive as access to dollar will enable them buy plants and machineries for the purpose of bolstering production.

 

“We believe manufacturers, which had hitherto experienced difficulty in sourcing FX for imports, should now have seamless access to FX for their businesses,” said analyst at Chapel Hill Denham (CHD) Limited in a June 17 note.

 

“Specifically speaking, we think the new structure is positive for Nigerian Breweries, Unilever, Guinness Nigeria Plc, Flour Mills of Nigeria Plc, and the sugar refiners, among others,” said analysts at CHD.

 

Guinness Nigeria recently disclosed that it had challenges, for more than 3 months, to procure the FX required importing its raw materials for beer production.

 

Unilever also said that the shortage of FX in the market impacted its supply lines and the procurement of some equipment for its production plants.

 

Nigerian Breweries also disclosed that the scarcity of FX had adverse impact on its business.

 

Nigeria’s currency slumped about 25 percent against the dollar after the government scrapped a 15-month peg.

 

The Nigeria Stock Exchange All Share Index (NSE-ASI) increased 0.33 percent to 29,247.27, the highest since November 2015.

 

Consumers names are among the price gainers on the floor of the exchange, as at 11:55 am Monday June 20.

 

Guinness Nigeria gained 1.46 percent to N104; Nigeria Breweries increased by 5.01 percent to N148.86;Cadbury share price gained 8.33 percent to N19.50; Flour Mills gained 2.33 percent to N22; Dangote Sugar gained 1.45 percent to N7 on the floor of the exchange.

 

“We could, however, see product price increases across the relevant companies as they seek to protect profit margins on the back of higher FX rates,” said analysts at CHD.

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