Several prominent consumer goods companies in Nigeria, including Cadbury, Guinness Nigeria, and Nestle, collectively lost an estimated N472.3 billion due to naira depreciation in the first nine months of 2023, as revealed by a recent report from Meristem.
The report highlighted the substantial impact of high inflation rates on production costs within the consumer goods sector, particularly affecting food and beverage manufacturers. It emphasized that the increased costs of essential raw materials such as grains, dairy, and meat directly impacted production, leading companies to either absorb the expenses or pass them on to consumers through higher prices.
For many companies in the consumer goods sector heavily reliant on the importation of raw materials, the weakened Naira resulted in significantly higher import bills, leading to a substantial increase in production costs. Additionally, companies holding foreign-currency-denominated debts, such as Nigerian Breweries Plc, Nestle Nigeria Plc, Guinness Nigeria Plc, and Cadbury Nigeria Plc, faced higher debt burdens and more expensive letters of credit, significantly impacting their profitability.
Amid Nigeria’s highest inflation levels in over 18 years, the consumer goods sector experienced notable challenges, including foreign exchange shortages, Naira devaluation, lower purchasing power of consumers, and rising commodity costs. These factors collectively cast shadows over the industry’s overall dynamics.
Looking ahead, the report predicted that ongoing inflation surge and the naira’s continued depreciation, coupled with challenges in foreign exchange liquidity, are expected to weigh on companies’ profitability. It also anticipated industry players engaging in business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging operating conditions in the Nigerian market.
Notably, the first nine months of 2023 witnessed a staggering N472.35 billion in foreign exchange losses for major players in the industry, underscoring the magnitude of the challenge posed by the naira’s depreciation on the financial health of consumer goods companies.
Overall, while positive signs, such as anticipated price hikes and robust sales during the festive season, are expected to drive increased revenue, several concerns linger over the industry’s outlook. Consumer goods companies are expected to adapt their product categories to remain relevant and innovative, aiming to address evolving consumer needs amidst the persisting economic challenges.
In the second quarter of 2023, approximately nine of Nigeria’s top firms, including MTN Nigeria Communications Plc, Airtel Africa Plc, Dangote Cement Plc, Nestle Nigeria Plc, and Nigerian Breweries Plc, collectively lost N960.18 billion to the new forex policy, underscoring the widespread impact of currency devaluation on businesses across various sectors.
Associate Professor Olusegun Vincent, a finance expert at the Pan-Atlantic University, Lagos, attributed the losses recorded by firms to foreign currency-denominated commitments. Vincent emphasized the critical need for companies to hedge against currency devaluation, including investments in foreign currencies and minimizing foreign debts, to mitigate potential financial vulnerabilities.
