Nigeria’s brewing industry, a vital player in the nation’s economy, faces a dire challenge as the depreciation of the Naira, the local currency, takes a heavy toll on its largest companies. High finance costs, primarily driven by volatile foreign exchange (FX) transactions, are jeopardizing the financial stability of the brewing giants, posing a threat to the industry’s future viability.

A recent investigation by local daily The Sun has shed light on the brewing crisis. FX transactions carried out on the parallel market have resulted in exorbitant finance costs for Nigerian Breweries, Guinness Plc, and International Breweries Plc, the three dominant players in the country’s brewing landscape.

Brewers rely heavily on forex to finance the import of crucial raw materials and service dollar-denominated loans. Unfortunately, the depreciation of the Naira by a staggering 40% against the dollar has sent these finance costs skyrocketing. Net finance costs for these brewing giants have surged to a staggering N117 billion, leaving them grappling with an unprecedented financial burden.

Nigerian Breweries, the market leader with the largest market share, has been hit hard by an 848.7% year-on-year surge in net finance charges, amounting to a staggering N96.22 billion. This increase is primarily attributed to a 10.7x jump in net loss on FX transactions, which reached N85.26 billion due to its foreign currency payables.

Guinness Plc, Nigerian Breweries’ closest competitor, has faced a similar fate, with net finance costs soaring by 435.9% in H1 2023 to N5.31 billion, compared to N619.65 million in the same period the previous year. As a result, Guinness Plc declared a loss of N18.2 billion for 2023, a stark contrast to its N15.7 billion profit in the previous year.

Meanwhile, International Breweries witnessed its net finance costs surge by 221.6% year-on-year to N5.60 billion in Q2 2023, primarily due to a substantial rise in finance costs.

Industry analysts are sounding alarm bells, fearing that if this situation persists, brewers may struggle to service their dollar-denominated loans and import critical raw materials. The confluence of an acute shortage of forex and soaring exchange rates threatens to undermine the breweries’ full-year earnings.

Victor Chiazor, Head of Research at FSL Securities, warned, “Our FX reserves are around $33 billion, while the net liquid position is far lower, which means that in real terms, the Central Bank of Nigeria does not have the required FX liquidity to meet the current demand. Hence, these companies are clearly struggling, and if this continues, it might adversely affect their 2023 earnings.”

In the midst of this turmoil, Guinness Nigeria has outlined plans to mitigate the crisis. “If liquidity improves, our plan is to actually pay off everything we owe in hard currency to reduce our vulnerability,” stated Emmanuel Difom, Finance and Strategy Director at Guinness Plc.

As Nigeria’s brewing industry grapples with the financial storm caused by the Naira’s depreciation and escalating finance costs, its future hangs in the balance. The hope is that swift measures and improved forex stability will enable these giants to weather the storm and continue quenching the nation’s thirst for their beloved brews.