Nigeria’s brewing sector, a crucial economic player, confronts a severe challenge as the Naira’s depreciation inflicts heavy damage on major companies. The financial stability of brewing giants, Nigerian Breweries, Guinness Plc, and International Breweries Plc, is at risk due to soaring finance costs propelled by volatile foreign exchange (FX) transactions, endangering the industry’s future viability.
An investigation by The Sun reveals the brewing crisis, with FX transactions on the parallel market resulting in exorbitant finance costs for the three key players. Brewers heavily depend on forex to fund vital raw material imports and service dollar-denominated loans. The Naira’s 40% depreciation against the dollar has led to an alarming surge in net finance costs, reaching a staggering N117 billion for the brewing giants, burdening them with unprecedented financial pressure.
Nigerian Breweries, the market leader, faces an 848.7% YoY increase in net finance charges, totaling N96.22 billion. Guinness Plc, a close competitor, experiences a 435.9% surge in net finance costs to N5.31 billion in H1 2023, resulting in a loss of N18.2 billion for the year. International Breweries sees a 221.6% YoY increase in net finance costs to N5.60 billion in Q2 2023.
Industry analysts sound alarm bells, warning that continued challenges may hamper brewers’ ability to service dollar-denominated loans and import critical raw materials. The acute shortage of forex and rising exchange rates pose a threat to full-year earnings.
Victor Chiazor from FSL Securities warns of a potential adverse impact on 2023 earnings, emphasizing the inadequacy of the Central Bank’s FX liquidity to meet current demand.
In response to the crisis, Guinness Nigeria plans to pay off hard currency debts if liquidity improves, aiming to reduce vulnerability. As the brewing industry grapples with financial turmoil, the hope is that swift measures and improved forex stability will empower these giants to weather the storm and continue satisfying the nation’s thirst for their renowned brews.