A recent report by Cardinal Stone, a financial solutions firm, has raised concerns about the likelihood of multinational firms within Nigeria’s Fast Moving Consumer Goods (FMCG) subsector exiting the country in 2024 if the current operating environment does not see significant improvements.
The report, titled ‘Strategic Resilience: Sailing Through Business Disruptions’, highlights the persistent high operating costs faced by firms within the FMCG sector. It underscores the sector’s vulnerability to fluctuations in commodity prices, exchange rates, import and clearing duties, as well as freight costs.
Notably, the report points out that FMCGs may not reap the benefits of the moderation in global commodity prices due to the substantial depreciation of the naira. It emphasizes that the weakening of the naira, from N422.00/$ in June 2023 to N951.94/$ in December 2023, following the Central Bank of Nigeria’s decision to float the country’s exchange rate, has compounded the challenges faced by these companies.
The report projects that companies will continue to revamp their operational strategies in 2024 to achieve cost efficiency. Additionally, it foresees potential collaborations among FMCGs to enhance economies of scale, product portfolio diversification, revenue and cost synergies, technological innovations, and overall financial robustness of the resultant entity.
However, the report also paints a cautionary picture, stating that failure to navigate the high-cost segments may lead to an exodus from the operating environment, citing instances such as those involving Procter and Gamble, GSK, Pernord Ricord, and Unilever.
Furthermore, the report anticipates that a weaker currency could result in escalated diesel costs, similar to the soaring diesel prices experienced in the latter half of 2023. It warns that higher energy costs are expected to persist in 2024, unless there is a substantial appreciation of the naira.
The impact of dollar-denominated debts, when translated to naira, and the rise in naira values of operating and machinery costs, which are intended to be funded with foreign currencies, could elevate borrowings, leading to an increase in effective interest rates, the report added.
As multinational firms in Nigeria’s FMCG sector brace for the challenges ahead in 2024, the report sheds light on the complexities and uncertainties that lie ahead, urging stakeholders to navigate these headwinds with strategic foresight and resilience.
This report serves as a stark reminder of the intricate relationship between macroeconomic conditions and the strategic decisions made by multinational corporations, underlining the ever-evolving landscape of global business operations.
