The Central Bank of Nigeria (CBN) has finally adopted a free float of the naira policy. These directives imply that the government or monetary authority e.g. CBN no longer determines the exchange rates which means the rate at which the naira gets exchanged for any foreign currency would be dependent on the price agreed by the buyer and seller.
Furthermore, because Nigeria is an import-dependent country, the naira float would influence several businesses because the costs borne by suppliers will be passed on to the final consumers.
The impact of naira float on BTA and PTA Nigerians seeking personal travel allowance, business travel allowance, and school tuition are likely to access FX depending on supply.
In addition, banks play a role in this by allowing customers to obtain the currency at the rate at which the banks can afford to sell it. Banks and other financial organizations can now purchase and sell dollars at their discretion.
The impact on SMEs in Nigeria will be widespread and affect various industries there, including
- More volatile exchange rates: The naira’s floating is likely to result in higher exchange rate volatility. Businesses should anticipate changes in the value of the naira and take them into account when making financial plans, such as pricing plans and budgeting for imports.
- Augmentation of pricing for imported goods and raw materials could result from severe naira depreciation, which would increase inflationary pressures. SMEs need to plan for future cost increases and look into ways to lessen the impact on their business operations.
The float of the naira will also have an impact on organisational marketing strategy in terms of the price of imported goods. To sustain profitability and competition, they may need to modify pricing. Furthermore, market segmentation will be impacted due to changes in customer behaviour caused by currency fluctuations, which will be actively observed. Companies should modify their marketing strategy to successfully express value propositions and fulfil customers’ changing requirements and expectations.
Overall, the future of international companies in Nigeria appears promising. Nigeria’s economy is quickly expanding, and there are numerous prospects for international companies to flourish in the Nigerian market. This is the time to keep a close watch on Nigeria’s economic position and examine the potential impact on your activities. Some important concerns are as follows:
- Currency Risk Management: With rising currency volatility, international businesses should have strong currency risk management techniques. This could include hedging currency exposures, diversifying suppliers or markets, and investigating financial solutions to reduce the impact of currency volatility on profitability.
- Market Entry Timing: The naira’s floating may open up new options for multinational enterprises such as AppsFlyer to enter or expand in the Nigerian market. However, the time of market entry must be carefully considered, taking into account economic conditions, the competitive landscape, and the regulatory environment. Thorough market research and determining the long-term profitability of the business enterprise are critical.
- Local Collaborations and Networks: Building strong alliances and networks with local businesses and stakeholders can provide significant insights and assistance in navigating the Nigerian market. Collaboration with reliable local partners can assist multinational businesses in understanding local dynamics, mitigating risks, and leveraging existing networks for market entry and expansion.
- Pricing and Competitive Positioning: In light of currency rate swings, international enterprises should evaluate their pricing strategies. They must strike a balance between profitability and competitiveness, considering the probable impact of a weakening naira on their costs, pricing structure, and value proposition. Pricing plans must be adjusted to reflect local market realities and client preferences.
- Adapting Marketing and Communication: Because client behaviour and tastes may shift as a result of economic volatility, multinational enterprises should adjust their marketing and communication strategies accordingly. Localized messages, customized advertising, and a thorough understanding of local cultural subtleties and consumer behaviour may be required.
- Regulatory Compliance: It is critical for multinational enterprises to abreast of any changes in Nigerian regulations or policies governing foreign investment, foreign exchange, and commerce. Following local regulatory standards and local regulations is critical for long-term success and sustainability.
Finally, it is worth emphasising that eliminating the naira subsidy will shift the economy toward exports. Whilst the free float of the naira creates opportunities for foreign companies interested in the Nigerian market, it also creates added risks and uncertainty. International enterprises ought to reposition themselves for success by implementing robust risk management measures and adapting their business plans to the ever-changing economic landscape. This will provide an incentive for complex, high-quality products that can compete on the international market, increasing activity in the SME sector. The relevant trade policies must be enacted in order to give such incentives for considerable exports of finished value-added commodities from Nigeria.