A recent report by Meristem reveals that significant fast-moving consumer goods (FMCG) companies, including Cadbury, Guinness Nigeria, and Nestle, collectively lost N472.3 billion to the depreciation of the Naira during the first nine months of 2023. The report highlights the substantial impact of high inflation rates on production costs within the consumer goods sector, particularly affecting food and beverage manufacturers.
The inflation-induced rise in production costs is attributed to increased expenses for essential raw materials such as grains, dairy, and meat. This, in turn, compelled companies to either absorb the costs or pass them on to consumers through elevated prices.
The report emphasises that companies heavily dependent on the importation of raw materials faced higher import bills due to the weakened Naira, resulting in a significant surge in production costs. Moreover, entities holding foreign-currency-denominated debts, such as Nigerian Breweries Plc, Nestle Nigeria Plc, Guinness Nigeria Plc, and Cadbury Nigeria Plc, encountered higher debt burdens and more expensive letters of credit.
As of 9M:2023, the cumulative foreign exchange losses for major players in the industry reached NGN 472.35 billion. The report underscores the magnitude of the challenge posed by the Naira’s depreciation on the financial health of consumer goods companies.
The report also notes that Nigeria’s inflation has reached its highest levels in over 18 years (28.20 percent YoY as of November 2023). This has significantly impacted consumer behaviour, purchasing power, and spending patterns, leaving a lasting mark on the industry’s overall dynamics.
Despite positive signs, such as anticipated price hikes and robust sales during the festive season, concerns regarding ongoing inflation, the Naira’s continued depreciation, and challenges in foreign exchange liquidity are expected to weigh on companies’ profitability.
Looking ahead to 2024, the report predicts that more industry players will engage in business restructuring, strategic acquisitions, and expansions to sustain profitability amid challenging operating conditions in the Nigerian market. Despite struggles with rising costs, companies are anticipated to adapt their product categories to remain innovative and relevant, addressing evolving consumer needs.
Earlier reports indicated that nine of Nigeria’s top firms lost N960.18 billion to the new forex policy in the second quarter of 2023. The steep devaluation of the Naira negatively impacted businesses, with firms including MTN Nigeria Communications Plc, Airtel Africa Plc, Dangote Cement Plc, and others experiencing losses due to foreign currency-denominated commitments.
Associate Professor Olusegun Vincent from the Pan-Atlantic University, Lagos, attributes the losses to companies’ exposure to debts denominated in foreign currency. He suggests that companies must make conscious efforts to hedge against currency devaluation by investing in foreign currencies and avoiding excessive foreign debt.