Some of Nigerians’ biggest manufacturers have seen their losses reduce in the second quarter of 2024, largely on the back of a drop in finance costs (including foreign exchange costs) and other measures taken to stay afloat.
This respite comes after the Federal Government reforms implemented last year negatively impacted the operations of many businesses, especially in the manufacturing value chain, and also created uncertainty in the country’s macroeconomic environment.
Analysis of the latest financial statements of 12 listed consumer goods firms shows that the combined loss of International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestle Nigeria, and Dangote Sugar Refinery Plc narrowed to N222.5 billion in the second quarter of 2024 from N331.4 billion in the previous quarter. But on a year-on-year count, the loss widened from N212.9 billion.
Champion Breweries Plc posted a loss in the first quarter (Q1) but swung to a profit of N44 million in the second quarter (Q2). BUA Foods Plc, Lafarge Africa, and Nascon Allied Industries Plc reported a total profit of N102.9 billion, higher than N62.2 billion.
But the total earnings of Unilever Nigeria Plc, Dangote Cement Plc, and BUA cement Plc dropped to N17.5 billion from N134.0 billion.
Further analysis of the statements revealed that the 12 manufacturers posted a combined revenue of N2.48 trillion in Q2, 13.2 percent higher than N2.19 trillion in Q1.
“We are already seeing some form of policy reforms that are yielding results, and one of them is the seeming stability in the foreign exchange rate. For two months now, it has not just been stable but has also come down,” said Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON), where most of its members are manufacturers.
He said in Q1, it was difficult to get FX from the regular banks but now it is more or less available in the regular banks which help to control the rate. “When you are able to control prices, then you can make more profit.”
Egbesola noted that international investors are returning due to some stability in the economy and that manufacturers are getting funds from international investors and not just banks, giving some stability in business planning.
“The government has also given a lot of tax incentives, especially for manufacturers, and also the removal of some levies has boosted their stability in the economy. The intervention fund that the government promised, some tranches of it have also increased the liquidity of some of the manufacturers.”
According to ASBON, some manufacturers have shut down some of their manufacturing plants that are not profitable and concentrate on the viable ones.
An officer at the Manufacturers Association of Nigeria (MAN), who asked not to be named, said some firms may have reduced their scale of operations by cutting down the volume of products, resulting in automatically reducing their liability or commitment.
“Some manufacturers would have gone to their parent companies to take up some liabilities because the FX dealt with producers who did forward payment in dollars,” he added.
Over the past eight years, Africa’s most populous nation has slumped into two recessions owing to the collapse of oil prices, disruptions caused by the COVID-19 pandemic, and an inability of the government to reform the economy.
Upon his assumption of office in May 2023, President Bola Tinubu implemented bold reforms, including the removal of petrol subsidy and naira devaluation, to boost revenues for the welfare of its citizens.
However, the reforms have increased inflationary pressures to the highest on record and weakened the purchasing power of consumers, even as businesses grappled with higher operating costs.
According to the National Bureau of Statistics (NBS), the country’s headline inflation rose to 28.92 percent in December 2023 from 22.41 percent in May last year.
The naira devaluation, coupled with rising interest rates, drove the finance costs of manufacturers, particularly the multinationals, whose major costs are denominated in foreign currencies.
Financing costs, also known as the cost of finance, are costs, interests, and other charges involved in the borrowing of money to build or purchase assets.
In Q2, about 11 manufacturers’ finance costs dropped to N496.8 billion from N549.9 billion in Q1. Since February 2024, Nigeria’s inflationary pressures have slowed but it picked up to 34.19 percent in June.
“There was this massive increase in the FX rate but in the second quarter, it fell. And the extent of the crash is why the government is saying inflation will slow down before the end of the year because the massive rise has already taken place,” Gabriel Idahosa, president of the Lagos Chamber of Commerce and Industry (LCCI), said.
“The fundamentals have not significantly changed but by the third quarter, things might change. So, we are hoping that it will change in the third quarter,” he added.
Since the beginning of the year, the Central Bank of Nigeria (CBN) has intensified its efforts to fight the country’s inflation rate, which is at a record high, by increasing the country’s benchmark interest rate, known as the monetary policy rate (MPR).
Last July, the CBN raised its monetary policy rate for the third straight time by 50 basis points to 26.75 percent. That takes the total hikes since February to a combined 800 basis points.
Apart from the MPR hike, the liberalisation of the FX regime has weakened the naira from N463.38/$ to N1,570.9/$ as of August 13, 2024. At the parallel market, the naira was traded at around 1,610/$ as against 762/$ before the FX reform.
“There is a little bit more certainty about what the exchange rate situation is and that has made scenario planning easier for some organisation,” Uchenna Uzo, professor of marketing and faculty director at Lagos Business School, said.
He added that manufacturers are now more deliberate about local sourcing of inputs to see how to reduce their costs and that if the inflationary situation improves this year, more growth may likely happen.
