Manufacturers sold more goods on credit in the first nine months of 2023 compared to the same period of last year on the back of weak demand caused by petrol subsidy removal and naira devaluation.
A BusinessDay analysis of the financial statements of nine fast-moving consumer goods (FMCG) firms shows that their total trade and other receivables rose by 72.7 percent to N645.1 billion in the first nine months of this year from N373.5 billion a year earlier.
The firms are Nestle Nigeria, Unilever Nigeria, Cadbury Nigeria, BUA Foods, Nascon Allied Industries, Dangote Sugar Refinery, Nigerian Breweries, Guinness Nigeria and Champion Breweries.
“The distributors who are their customers are carrying less stock because of reduced production capacity as result of low demand. So, it does not make sense to just fill their stalls or warehouses with a lot of goods that they may not sell,” Gabriel Idahosa, deputy president of the Lagos Chamber of Commerce and Industry, said.
He said distributors do not want to overburden themselves with warehousing costs and heavy receivables to be paid to their manufacturers.
Ayodeji Ebo, the managing director/chief business officer at Optimus by Afrinvest limited, said demand for producers’ goods are low as a result of shrinking demand or a constrained consumer wallet.
“The reduction in the availability of credits to manufacturing companies which has also made them to reduce their credits to their own consumers through their distributors,” he added.
The Tinubu administration’s reforms including the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, have pushed the inflation rate to the highest level in 18 years.
Rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
The naira has plunged to record lows across markets since the central bank allowed it to weaken by as much as 40 percent against the dollar in June.
According to the National Bureau of Statistics, the country’s inflation rate rose to 27.33 percent in October from 26.72 percent in the previous month.
The latest monthly Purchasing Managers’ Index by Stanbic IBTC Bank showed that business activity contracted in October for the first time in seven months.
The headline index dropped to 49.1 from 51.1 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.
Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said price stability in the market is a major concern for businesses.
He cited an example where a manufacturer sells a product for N5,000 per pack today and the person wants to collect the money in 30 days, “but in the next 30 days that money may not be able to produce that same product again. So, the best is to sell and collect your money immediately and use it for your next transactions.”
According to Egbesola, people are not buying as much as before as there is no liquidity in the system again and that many businesses are working with borrowed funds from the bank.
“Everybody is trying to find ways to cut costs and make do with whatever they have at the moment.”
BusinessDay reported recently that six out of 10 FMCG firms in Nigeria posted losses in the first nine months of this year as their borrowing costs swelled on the back of rising interest rates and naira devaluation.
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Nestle, Cadbury, Dangote Sugar Refinery, Nigerian Breweries, International Breweries and Champion Breweries suffered a combined loss of N166.3 billion.
In the same period of last year, five of them reported a total profit of N83.9 billion, while International Breweries posted a loss of N2.81 billion.
The other four fared better Guinness Nigeria’s profit declined to N2.59 billion from N2.75 billion. BUA Foods and NASCON Allied Industries saw their profits rise by 53.5 percent and 281.9 percent respectively. Unilever reported a profit of N1.67 billion, compared with a loss of N348 million a year earlier.
“The economy does not really support a relaxed credit policy for FMCGs because it could create a cash flow and sustainability problem for them. Hence, the need to be more cautious and intentional on how they implement their credit policy generally,” Israel Odubola, a Lagos-based research economist, said.
