Nigeria: Consumer goods giants teeter on exit amidst economic downturn, report warns
A new report by financial solutions firm Cardinal Stone, titled ‘Strategic Resilience: Sailing Through Business Disruptions,’ has raised concerns that multinational firms within the Fast Moving Consumer Goods (FMCG) subsector might exit the country in 2024 unless the challenging operating environment improves.
The report emphasises that persistently high operating costs pose a significant threat to companies in the FMCG sector.
It highlights the sector’s vulnerability to fluctuations in commodity prices, exchange rates, import and clearing duties, as well as freight costs.
Despite a global moderation in commodity prices, the report notes that the FMCGs may not reap the benefits due to the substantial depreciation of the naira.
The Central Bank of Nigeria’s decision to float the exchange rate in June 2023 aimed to address forex scarcity but led to the naira weakening from N422.00/$ in June 2023 to N951.94/$ in December 2023.
“In 2024, we expect companies to continue to re-imagine their operational strategies to achieve cost efficiency,” states the report.
It suggests potential collaboration between FMCGs to enhance economies of scale, product diversification, revenue and cost synergies, technological innovations, and financial strength.
The report warns that failure to adapt may result in a scenario akin to the exits of Procter and Gamble, GSK, Pernord Ricord, and Unilever from high-cost segments or the operating environment.
Highlighting the impact of a weaker currency, the report points out potential spikes in diesel costs, referencing the surge in diesel prices to N1,004.98 per litre in the second half of 2023.
It also anticipates higher energy costs to persist in 2024 unless there is a significant appreciation of the naira.
Additionally, the report raises concerns about elevated borrowings due to the combined effects of dollar-denominated debts translating to naira and increased naira values of operating and machinery costs funded with foreign currencies.
The consequence, the report suggests, could be an upswing in effective interest rates.
