AS FMCG firms become the latest casualty to the country’s worsening business environment, stakeholders are worried about the fate of local industries, fearing that if nothing is done quickly to stem business closure, the future of manufacturing is endangered, TOBI AWODIPE reports.
Just last week, Nigeria’s local manufacturing sector was dealt a huge blow as one of the biggest brewers in the country, Nigerian Breweries, announced that it is suspending operations in two of its nine breweries.
While the Managing Director/CEO, Nigerian Breweries Plc, Hans Essaadi, described this move as strategic and vital for business continuity, saying it is part of a company-wide reorganisation in their Business Recovery Plan, he however lamented the country’s tough business landscape and harsh operating environment, characterised by double-digit inflation rates, Naira devaluation, forex challenges and diminished consumer spending, which he said has taken its toll on many businesses, including theirs.
Indeed, unstable macroeconomic indicators have affected the medium and long-term plans of many businesses, a situation, experts said is eliminating profitability, leading to more job losses and low tax revenue, threatening the survival rate of many businesses and triggering more exits of multinationals.
Last month, the Manufacturers Association of Nigeria (MAN) revealed that 767 manufacturing companies shut down operations, 335 are distressed, while inventory of unsold finished goods stood at N350 billion. The association also revealed that the sector continued to record a real growth drop and needed urgent intervention to stay alive.
A recent report by Cardinal Stone recently revealed that more multinational firms in the Fast-Moving Consumer Goods (FMCG) subsector may exit the country this year if the operating environment fails to improve. According to the report, the FMCG sector remained heavily exposed to changes in commodity prices, exchange rates, import and clearing duties, freight costs, high operating costs and diminished purchasing power.
The closure of companies is reflected in government revenue as well as the Federal Government’s tax revenue from local companies in Nigeria declined by 36.4 per cent in three months, according to the National Bureau of Statistics (NBS). The statistical body’s latest Company Income Tax (CIT) report showed that tax revenue reduced to N651.6 billion in the third quarter of 2023 from N1.02 trillion in the previous quarter.
Last year, International Breweries Plc, Cadbury Nigeria Plc, Morison Industries Plc and Neimeth International Pharmaceuticals Plc, posted a combined loss of N89.8 billion in 2023 while International Breweries recorded a loss of N21.6 billion.
Other companies that recorded FX-related losses in 2023 include, Nestle Nigeria, N173.92 billion; Nigerian Breweries, N153.33 billion; NASCON Allied, N8.54 billion; BUA Cement, N69.95 billion; Lafarge Africa, N 21billion; Guinness Nigeria, N49.1 billion; Dangote Cement, N164.07 billion; BUA Foods, N73.56 billion; Dangote Sugar, N148.33 billion; Okomu Oil, N0.21 billion; Notore Chemical, N5.59 billion; Vitafoam Nigeria, N0.103 billion; Beta Glass, N0.98 billion and Unilever N6.94 billion.
Last year was a difficult one for the real sector as several multinationals and businesses closed down mostly due to forex scarcity and heavy FX losses. Just when the sector was hoping for a turnaround and the situation to improve this year, Jubilee Syringe, located in Akwa Ibom State, announced it was shutting down operations, listing FX issues and a harsh operating environment among other reasons, as the basis for closing down.
While the FMCGs and breweries have continued to suffer heavy losses despite the back-to-back price increases and have shut down operations or significantly cut down on production, the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the situation is not peculiar alone to breweries or FMCGs. He said all businesses in the country are having problems due to macroeconomic headwinds which are reflected in foreign exchange, inflation and rising prices.
He added that because of the situation of the country, purchasing power is weak and consumers are prioritising spending. He said consumers’ priorities have changed as many can no longer afford items they would have easily bought a year ago.
“Prices of goods are also going up every day, the elasticity of demand is high and it is telling on industries like the breweries. It is not easy to transfer costs to consumers because they are also aware that affordability is an issue and when they can no longer absorb the damage on profit margins that is when they increase prices. Margin has now become so eroded that they must look for how to cut costs one way or the other. Some of the multinationals that left, felt this location was not adding anything to their bottom line and decided to cut their losses quickly.”
A recent World Bank Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s biggest economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year, just as the inflation rate recently jumped to 33.2 per cent.
Yusuf added that the sector is very competitive and heavy competition in the face of rising poverty and shrinking disposable income has led to problems for the real sector. “The role of FX losses in the closure of many of the affected businesses cannot be over-emphasised. Most of these companies suffered heavy losses running into billions of naira and have not been able to rebound from the losses. A lot of companies, especially multinationals, have heavy FX exposure, as they source most of their materials from outside the country. It is therefore not surprising that they are the most hit. Also, it must be stressed that purchasing power is extremely poor, many people are unable to buy what is being produced.”
“Also, high energy costs are affecting many industries. In a situation where industries are forced to pay high electricity tariffs and still buy diesel and fuel to produce is detrimental to their survival. No business can survive like this for long. These problems are just a part of the many other issues businesses face. If we are serious about saving our industries from total collapse, the government has some work to do,” he said.
While noting that these problems are not peculiar to FMCGs and manufacturers alone, he urged the government to bring down inflation, create more jobs and fix the economy, he said this is the only way to save the sector from imminent collapse. “When people are gainfully employed and resources are available, there will be more disposable income for things. You cannot expect someone who has no job and has not eaten to use whatever resource is available on non-essentials. The lack of purchasing power is affecting many companies,” he said.
Former MAN chairperson, Apapa branch, Frank Ike Onyebu, lamented that frequent policy flip-flops, high-interest rates on loans, hyper-inflation, high energy costs, multiple levies and taxes as well as an unfriendly operating environment, among others, have rendered manufacturers endangered species. He said if nothing is done urgently to save the sector, it would fall apart completely very soon. He added that none of the interventions and reforms of the government are felt by the real sector as operating costs threaten to send them out of operations.
“For manufacturers using local inputs, suppliers that raised prices at the height of naira depreciation, have not dropped their prices. Materials sourcing is a major problem for most of us as we cannot get a good amount of the materials we need here and have to rely on import. Similarly, the manufacturers, who imported their inputs at higher prices are unable to lower them until after the sale of those products manufactured with the high input cost. This is why the government needs to always think through policy measures before implementation. I’m hopeful though that if the government sustains the current FX policy measures, some semblance of stability will set in. Businesses can only thrive in a stable environment. Conversely, nothing kills businesses like uncertainty because they need long-term planning to survive.
“It is based on the heightened atmosphere of uncertainty that many multinational manufacturing companies exited the country in the last couple of months and some are still set to leave. No manufacturer wants to set up shop in a country with these many policy somersaults. In addition to the fact that multinationals are leaving, new ones are not coming in. Foreign direct investments have been limited to short-term investments like the stock market, among others. Long-term foreign investments have been near-zero in the recent past.
“The recent destructive electricity tariff hike could be the final straw for a lot of companies. I am afraid that if nothing is done very soon, many manufacturing plants in Nigeria will eventually shut down. This will result in higher unemployment levels, increased insecurity and lower revenues for the government. Insecurity is at an all-time high, stemming from unemployment and this affects the real sector. The government must, therefore, create and implement deliberate policies to ensure a reversal of the current trend. Emphasis should be given to the provision of adequate electricity supply to factories as well as an upgrade of dilapidated infrastructure and improvement in the operating environment for manufacturing. The government should also ensure proper stakeholder consultation before the enactment of major policy decisions.
He added that aside from the fact that multinationals are exiting and new ones not coming in, smaller local manufacturers have been shutting down quietly. “Several companies have held on for a long time waiting for some sort of miracle and when the situation worsened instead of improving, they threw in the towel,” he said.
Chairperson, SME Group of the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson-Okezie, said while the naira needs to be stabilised, he is unsure how long it can be sustained to show impact on businesses and the economy.
“There has been no visible impact on small businesses, nothing has changed for now. Multinationals are leaving and small businesses are shutting down and a key factor is FX unavailability and losses arising from depreciation. Manufacturers are not finding it easy to get raw materials due to FX, just as they battle poor power supply and heightened insecurity.
Calling on the Federal Government to help manufacturers access funds easily at lower interest rates, he said a long-term positive change is needed in stabilising the naira. “We need to improve exports, cut down on imports and permanently address the issue of naira depreciation”, he said.
