Impact of the June 2013 Foreign Exchange Market Activity on the Corporate Performance of Pz Cussons Nigeria Plc in 2013: Need for Strategic Direction to Mitigate the Resultant Exchange Rate Risk

EXECUTIVE SUMMARY

The major purpose of this report is to provide a macro to micro-analysis and overview of the impact as well as import of the foreign portfolio investment activity that occurred in the first half of June on Nigeria’s domestic currency markets and in turn, economic activities, most especially its effect on corporate performance in 2013. The basis or major objective of analysing the macroeconomic framework of the domestic foreign exchange market is to evaluate strategies and develop policy direction in line with the vision of PZ Cussons Nigeria Plc, in a bid to mitigate the possible exchange rate risks on the corporate performance parameters of the Company. The limitations of the report are due to incompleteness of economic and industry data to provide a more robust financial and economic analysis.

In June 2013, the domestic foreign exchange market experienced decline in the exchange rate, as the naira depreciated against the US Dollar across all market levels. Observably, the IFEM and BDC markets were mostly impacted. The continued depreciation of the naira against the dollar currency, which resulted in slight volatility in the domestic forex market, was caused by the general sell-off of financial assets by foreign portfolio (fixed income & equity) investors in emerging and frontier markets following new policy direction by the US Federal Reserve Bank regarding its stimulus programs, as global investors began exiting emerging markets leading to losses in the Nigerian bond and equity markets as well as reduced bids for naira assets. Furthermore, Nigeria’s crude oil production declined by 3.5% from 1.930 million barrels per day (bpd) in May to 1.861 million bpd in June. Consequently, the continued decline in the volume and value of the country’s oil production may impact upon the excess crude reserves as well as the overall country’s foreign reserve account as net outflows may exceed net inflows in the short-run. Nigeria’s foreign reserves provide...