Several prominent Nigerian manufacturing companies experienced a reduction in their losses during the second quarter of 2024. This improvement can be primarily attributed to a decrease in financing costs, including foreign exchange expenses, as well as the implementation of various measures to ensure business continuity.

The previous year's reforms introduced by the Federal Government had a negative impact on the operations of numerous businesses, particularly those within the manufacturing sector. These reforms also contributed to an overall sense of uncertainty in the country’s macroeconomic environment.

An analysis of the most recent financial statements from twelve publicly listed consumer goods companies reveals that the combined losses of International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestle Nigeria, and Dangote Sugar Refinery Plc decreased from N331.4 billion in the first quarter of 2024 to N222.5 billion in the second quarter. However, it is important to note that this loss still exceeded the N212.9 billion loss recorded during the same period in the previous year.

Champion Breweries Plc, which had reported a loss in the first quarter, managed to turn a profit of N44 million in the second quarter. Additionally, BUA Foods Plc, Lafarge Africa, and Nascon Allied Industries Plc collectively reported a total profit of N102.9 billion, which was significantly higher than the N62.2 billion profit recorded in the previous quarter.

The aggregate earnings of Unilever Nigeria Plc, Dangote Cement Plc, and BUA Cement Plc experienced a significant decline, falling from N134.0 billion to N17.5 billion.

A thorough examination of the financial statements indicates that the twelve manufacturers collectively generated N2.48 trillion in revenue during the second quarter, representing a notable 13.2 percent increase compared to the N2.19 trillion recorded in the first quarter.

 

“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 observed that international investors are re-entering the market as a result of increased economic stability. He highlighted that manufacturers are securing funding from international investors in addition to traditional banks, which contributes to greater stability in their 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 the Association of Small Business Owners of Nigeria (ASBON), certain manufacturers have opted to cease operations in their less profitable manufacturing plants and focus their efforts on more viable facilities.

An anonymous representative from the Manufacturers Association of Nigeria (MAN) suggested that certain companies might have curtailed their operations by lowering production levels, thereby reducing their liabilities and obligations.

“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.

In the last eight years, Nigeria, Africa's most populous country, has experienced two recessions due to falling oil prices, COVID-19 disruptions, and government failures to reform the economy. When President Bola Tinubu took office in May 2023, he introduced significant reforms such as eliminating the petrol subsidy and devaluing the naira to increase revenue for citizen welfare.

These changes, however, have led to record-high inflation and diminished consumer purchasing power, while businesses faced rising operating costs. The National Bureau of Statistics reported that Nigeria's headline inflation climbed to 28.92 percent in December 2023, up from 22.41 percent in May of the previous year.

The naira's devaluation and increasing interest rates have raised financing costs for manufacturers, particularly multinational companies that incur substantial expenses in foreign currencies.

Financing costs refer to the expenses, interest, and other charges related to borrowing money for acquiring assets. In the second quarter, the finance costs for about 11 manufacturers decreased to N496.8 billion, down from N549.9 billion in the first quarter.

Although inflationary pressures in Nigeria have eased since February 2024, they rose again 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.

To combat the nation’s record-high inflation rate, the Central Bank of Nigeria (CBN) has stepped up its efforts since the start of the year by raising the benchmark interest rate, known as the monetary policy rate (MPR).

In July of last year, the CBN increased its monetary policy rate by 50 basis points to 26.75 percent, marking the third consecutive hike. This brings the total increase since February to a combined 800 basis points.

In addition to the MPR hike, the liberalization of the foreign exchange (FX) regime has resulted in a significant depreciation of the naira, from N463.38/$ to N1,570.9/$ as of August 13, 2024. On the parallel market, the naira was trading at approximately 1,610/$ compared to 762/$ prior to 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 further stated that manufacturers are now more strategic in their approach to local sourcing of inputs, seeking ways to optimize cost reduction. Should the inflationary environment show signs of improvement this year, there is a strong likelihood of enhanced growth.