Free-trad­ing naira ef­fects

Finweek English Edition - - MARKETPLACE -

Nige­ria is let­ting its cur­rency, the naira, trade freely from 27 June; ex­pec­ta­tions are that it will see sig­nif­i­cant weak­ness on the day. Lo­cally, the im­me­di­ate im­pli­ca­tion is that the MTN fine will likely be cheaper as it is priced in naira. How­ever, longer term, a weaker naira means that prof­its, when con­verted back to rand, will be smaller and this is go­ing to hit a wide range of lo­cal com­pa­nies that do busi­ness in the coun­try. MTN will likely take the big­gest hit as Nige­ria is its largest profit gen­er­a­tor at ebitda (earn­ings be­fore in­ter­est, tax­a­tion, de­pre­ci­a­tion and amor­ti­sa­tion) level, with just over 35% of rev­enue com­ing from Nige­ria. But Nam­pak, Sho­prite and others will also see lower prof­its when con­verted back to rand. A quick look at Sho­prite shows that about 14% of rev­enue is from non-RSA out­lets and Nige­ria is about 10% of that fig­ure. So any dent to Sho­prite prof­its should be mod­est.

Longer term, a weaker naira means that prof­its, when con­verted back to rand, will be smaller.

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