The Effect of Exchange Rate Fluctuations on the Profitability of Multinational Firms in Nigeria

This study examines the effect of exchange rate fluctuations on the profitability of multinational firms operating in Nigeria. Foreign exchange volatility has emerged as one of the most disruptive macroeconomic risks facing businesses in Nigeria, particularly following the Central Bank of Nigeria's unified exchange rate policy reforms in 2023. Multinational firms, which typically generate revenue in naira but incur costs in foreign currencies, are especially vulnerable to exchange rate movements. This study uses an ex-post facto research design, drawing on financial data from the annual reports of 12 listed multinational firms across manufacturing, FMCG, and services sectors for the period 2019 to 2023. Exchange rate is measured using the official naira-to-dollar rate published by the CBN, while profitability is assessed using earnings before interest and tax margin and return on assets. Panel data regression analysis is applied. Results reveal that exchange rate depreciation has a statistically significant negative effect on profitability, particularly for firms with high import dependence. Companies that employed natural hedging through local sourcing showed more resilient profit margins. The study concludes that exchange rate exposure management is a critical financial strategy for multinational operations in Nigeria. It recommends that corporate treasurers implement comprehensive foreign exchange risk management frameworks, including forward contracts and local content development strategies, to mitigate currency-induced profit erosion.

Keywords: exchange rate, multinational firms, profitability, naira, foreign exchange risk.