How to Protect Your Business from The Falling Naira

The Nigerian Naira has been in flux for the past few years, and businesses of all sizes have faced the challenges of staying afloat and protecting their investments. It is essential to have sound strategies in place to counteract the effects of the falling Naira. 

Effect of the Falling Naira on Businesses

The value of the Nigerian Naira has been falling for several years now, and, as a result, importing goods has become increasingly expensive for businesses. This has led to a rise in the prices of products and services, which has squeezed profit margins, reduced sales, and caused bankruptcy for many businesses. The falling Naira has also made it more difficult for companies to repay their debt to foreign companies. 

Companies that import goods will face higher interest rates when they borrow from foreign lenders, which could mean that some businesses cannot get the funds they need to run their operations. The cost of servicing loans has also risen. Banks have responded to these challenges by increasing their lending rates, putting small businesses under more pressure. The impact of the falling Naira on businesses has been significant and is expected to continue in the short term.

Proven Strategies to Protect Your Business from the Falling Naira

The key to protecting a business from the falling Naira is to hedge against the risk of currency devaluation. This can be achieved by using a forward contract to lock in an exchange rate that is favourable to the business. 

Forward contracts allow businesses to protect their existing assets against devaluation. They are a proven strategy that protects a business’s existing assets while also providing a buffer against future losses. A forward contract is an agreement between two parties to buy or sell assets at a specific price on a date in the future. These contracts are usually used to hedge against exchange rate risks, interest rate risks, and commodity price risks. 

Forward contracts can protect businesses against the risk of the Naira falling. They can be used to purchase a specified quantity of foreign currency for the current rate and sell it for the specified rate in the future. This allows businesses to lock in a favourable exchange rate today, protecting them from the risk of the Naira falling. 

Another strategy businesses can use to protect themselves from the falling Naira is diversifying their investments. This means that businesses should not limit themselves to seeking finance in the Nigerian market. Instead, they should look to other markets, such as the Asian market, as these can provide a welcome reprieve from the challenges of the Nigerian economy. 

Investing in hard assets can also be a useful strategy for protecting your business. This strategy involves purchasing tangible assets such as real estate and gold, which can be sold off in the event of a crisis or devaluation.

Leveraging technology can also be a useful strategy for protecting your business. This can include investing in new technologies to improve operations and make your business more efficient. 

Finally, businesses need professional advice on protecting their investments from the impact of the falling Naira. Doing so can help businesses understand their challenges and identify the most suitable strategies for protecting themselves from falling Naira. 

Taking these steps can help businesses to stay afloat, protect their existing assets and make the most of the opportunities presented by the current economic climate.

Conclusion

As you have read, the falling Naira has presented many businesses with challenges. Fortunately, there are proven strategies that businesses can employ to protect their investments to continue to grow and prosper despite the changing economic environment. You can subscribe to the AXA Mansard blog to learn more about protecting your business.