NIGERIA – A new report by financial firm Meristem has revealed that major fast-moving consumer goods (FMCG) companies in Nigeria, including Cadbury, Guinness Nigeria, and Nestle, collectively lost a staggering N472.3 billion (US$535.13M) during the first nine months of 2023, primarily due to the depreciation of the Naira.
The Naira depreciated by 38.9 percent against the US dollar at the official Investors and Exporters (I & E) window of the Central Bank of Nigeria within the past three months.
The report sheds light on the significant impact of high inflation rates on production costs, particularly affecting food and beverage manufacturers within the consumer goods sector.
It underscores the challenges faced by companies in dealing with increased costs of essential raw materials such as grains, dairy, and meat, either absorbing the expenses or passing them on to consumers through higher prices.
The report states, “For the majority of companies in the consumer goods sector, which heavily rely on the importation of raw materials, the weakened Naira translated into significantly higher import bills, thereby leading to a substantial increase in production costs.”
Companies with foreign-currency-denominated debts, including Nigerian Breweries, Nestle Nigeria, Guinness Nigeria, and Cadbury Nigeria, faced higher debt burdens, more expensive letters of credit, and substantial challenges amid the Naira’s depreciation.
The consumer goods sector, grappling with Nigeria’s highest inflation levels in over 18 years (28.20 percent YoY as of November 2023), encountered various challenges such as foreign exchange shortages, Naira devaluation, reduced consumer purchasing power, and escalating commodity costs.
These factors collectively contributed to a challenging operating environment for the industry.
Looking ahead, the report advises industry players to consider business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging market conditions in Nigeria in 2024.
According to the half-year financial reports of the firms, the steep devaluation of the naira, following the Central Bank of Nigeria’s attempt to close the gap between the official and parallel rates of the naira, negatively impacted their businesses.
“Despite ongoing struggles with rising costs due to inflation and substantial FX losses affecting their bottom line, we foresee consumer goods companies adapting their product categories to remain relevant and innovative, aiming to stay ahead of the curve in serving evolving consumer needs,” the report concluded.
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