NIGERIA – Cadbury Nigeria Plc and Nestlé Nigeria Plc are among the food producers that reported a significant surge in borrowing costs during the first quarter of 2024. 

Cadbury and Nestle’s latest financial statements indicate year-on-year finance cost rises of 6,757.9 percent and 3,997.4 percent, respectively. 

Finance costs, also referred to as the cost of finance, encompass expenses, interest payments, and other charges associated with borrowing funds for asset acquisition or development. 

Further examination of the data reveals that the combined finance costs of 11 manufacturing firms reached N550.2 billion (US$370.76M)in Q1, marking a staggering 771 percent increase from N63.18 billion (US$42.57M) in the corresponding period of the previous year. 

Ayorinde Akinloye, a Lagos-based investor relations analyst, attributed the higher finance costs of many consumer firms to foreign exchange losses and increased interest rates.  

“A lot of consumer firms had higher finance costs because of FX losses and higher interest rates. Despite some of them having good operating performance, their profit declined while others recorded huge losses,” said Ayorinde. 

Among the notable increases, Dangote Sugar Refinery Plc recorded a finance cost growth of 1,419.9 percent, followed by BUA Foods Plc (611.74 percent), Nigerian Breweries Plc (284.32 percent), and Unilever Nigeria Plc (279.49 percent). 

Gabriel Idahosa, president of the Lagos Chamber of Commerce and Industry, pointed out that the rising cost of borrowing is a consequence of banks adjusting their interest rates in alignment with changes in the monetary policy rate.  

He emphasized that factors such as working capital requirements and currency exchange rates exacerbate the need for increased borrowing in naira. 

The Central Bank of Nigeria (CBN) implemented consecutive increases in the monetary policy rate, reaching 24.75 percent in March, as part of efforts to combat inflation.  

This followed a 400-basis-point hike in February. The CBN previously raised the interest rate by 750 basis points to 18.75 percent in July 2023 from 11.25 percent in March 2022. 

Nestlé Nigeria’s finance cost surged to N218.8 billion (US$12.77M) in Q1 2024 from N5.34 billion (US$3.6M) in the same period of 2023.  

Similarly, Dangote Sugar Refinery saw its finance cost rise to N122.5 billion (US$83.22M) in Q1 2024 from N8.06 billion (US$5.48M) in Q1 2023, while Cadbury Nigeria’s finance cost increased to N13.03 billion (US$8.85M) from N0.19 billion (US$129,077.84) over the same period.

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