The fast-moving consumer goods (FMCG) sector in Nigeria is facing a number of challenges that are affecting its profitability and growth. The sector, which includes companies that produce food, beverages, household, and personal care products, relies heavily on raw materials and imported finished goods. However, the recent devaluation of the naira and the increase in interest rates have made imports more expensive and difficult to finance.
According to a report by BusinessDay, the total finance cost of 10 FMCG firms rose by 469.4 percent to N376.4 billion in the first half of 2023, from N66.1 billion in the same period of last year. The firms are Nestle Nigeria, Unilever Nigeria, Cadbury Nigeria, BUA Foods, Nascon Allied Industries, Dangote Sugar Refinery, Nigerian Breweries, Guinness Nigeria, International Breweries and Champion Breweries.
The report attributed the rise in finance cost to the naira devaluation in June and the hike in the benchmark interest rate, also known as the Monetary Policy Rate, which 725 basis points have raised to 18.75 percent since May last year. These factors have increased the cost of servicing foreign currency-denominated loans and accessing credit from local banks.
The devaluation of the naira resulted from the Central Bank of Nigeria’s (CBN) decision to unify all foreign exchange market segments into the Investors and Exporters window and reintroduce the willing buyer, willing seller model. The move aimed to improve liquidity and transparency in the forex market, but it also led to a sharp depreciation of the naira against the dollar and other major currencies.
The naira has lost about 40 percent of its value since June, reaching as low as N1,000 per dollar on the parallel market. As of Friday, the official exchange rate increased from N463.38/747.76/to N747.76/. The weak naira has also fuelled inflation, which rose to an 18-year high of 25.80 percent in August, according to the National Bureau of Statistics (NBS).
The high inflation rate has eroded the purchasing power of consumers, who are already facing low income and high unemployment due to the COVID-19 pandemic and its economic impact. This has reduced the demand for FMCG products, especially those that are not considered essential or have cheaper alternatives.
The FMCG sector is also facing competition from new entrants and local producers who offer lower prices and cater to the needs of low-income consumers. Some of these players include Procter & Gamble Nigeria, Reckitt Benckiser Nigeria, Flour Mills of Nigeria Plc, Honeywell Flour Mills Plc, and Olam Nigeria Limited.
The report noted that five of the 10 FMCG firms – Guinness Nigeria, Dangote Sugar, International Breweries, Nigerian Breweries, and Cadbury Nigeria – reported a combined loss of N131.9 billion in H1 2023, compared with a profit of N57.3 billion a year earlier.
The report quoted some analysts who suggested possible ways to address the FMCG sector’s challenges. These include creating ethical standards, ensuring transparency and accountability, fostering public awareness and education, and working with the government and the industry to ensure the safety and benefits of FMCG products.
The report also highlighted some opportunities for growth and innovation in the sector, such as tapping into Nigeria’s large population and consumer base, leveraging digital platforms and e-commerce channels, investing in research and development, and exploring new markets and segments.
Despite the current difficulties, some FMCG firms have expressed optimism about their future prospects. For instance, Nestle Nigeria said it remains confident in delivering value to its shareholders and stakeholders by focusing on high-quality nutrition solutions that meet consumer needs.
Source: BusinessDay
