Nigerian consumer goods firms are grappling with soaring finance costs which surged by 56 percent in 2024, as the central bank’s interest rate hikes push borrowing expenses to multi-year highs.......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
Analysts warn that the rising cost of debt is squeezing profit margins and may lead to higher product prices for consumers.
The cumulative finance cost of eight consumer goods firms tracked by BusinessDay increased to N811.7 billion last year, highlighting the impact of the hawkish stance of the CBN.
“High interest rate environment, Naira devaluation on FX denominated loans led to the increase in finance cost for the fast-moving consumer goods firms,” Bolade Agboola, consumer goods analyst at ChapelHill Denham, said.
Uzo Uchenna, a professor of marketing at Lagos Business School said finance costs have been rising because of the way interest rates have increased with the effort to curb inflation.
He said some consumer goods firms need to borrow more to manage their cash flow problems and a lot of companies are suffering from high input costs hence the cost of doing business has risen while sales have dropped.
Read also: What to expect from consumer goods firms in 2025
“FMCG firms can manage increased borrowing costs by revising product portfolios to remove the ones with high cost of sales and low return. Inventory and idle machinery can be evaluated and all of these will require business models to reduce wastage and have more financial reward,” he stated.
Nigeria’s central bank jacked up benchmark interest rates from about 18 percent in July 2023 to 27.5 percent by the end of 2024 in an attempt to rein in stubbornly high inflation that averaged 32 percent in the year under review.
The interest rate increase made it difficult for the consumer goods firm to borrow as borrowing became more expensive as a result of the increasing cost of servicing debts.
Out of the eight consumer goods firms analysed, five recorded increases in finance costs during the period reviewed while there were three exceptions.
The three exceptions are Nascon Allied Industries which recorded a finance cost dip of 18.06 percent, Cadbury Nigeria recorded a 41.2 percent drop and Unilever Nigeria recorded a 97.8 percent decline.
Champion Breweries recorded the highest finance cost growth of 529.4 percent, Guinness Nigeria recorded 197.5 percent, Nestle Nigeria (68.22 percent growth), Dangote Sugar Refinery (49.4 percent growth) and BUA Foods (14.9 percent growth).
“The movement in the interest rate and the devaluation impact are the two major elements that are affecting the cost of securing finance for the consumer goods firms,” Abiodun Keripe, managing director at Afrinvest Consulting Limited, said.
Nigerian consumer goods firms have been faced with economic headwinds characterised by the Naira devaluation that has left foreign exchange losses piling.
But with naira steadying and inflation easing, policymakers may begin to tune down sky-high interest rates, giving respite for choking FMCGs.
