Nigerian Breweries, the local unit of Heineken NV, the world’s second-largest brewer, had its worst February in 15 years after the central bank drained about 2.1 trillion naira ($4.6 billion) of cash from Africa’s biggest economy.
The Central Bank of Nigeria began replacing old 200-, 500- and 1,000-naira notes with news ones in December, triggering a cash scarcity that’s intensified in recent weeks.
Nigerians have spent hours — often in vain — waiting in ATM queues to withdraw banknotes. Nigerian Breweries Plc like many other businesses, depends on cash for about 80% of its retail sales, according to Chief Executive Officer Hans Essaadi.
Sales have been hit this quarter, “not because people don’t have the appetite to consume, but because there’s no money,” he said in an interview at his office overlooking the Lagos lagoon on Banana Island. “For the average man on the street, it’s a disaster.”
Nigeria’s decision to demonetize high-value currency bills is stalling the nation’s estimated $220 billion informal economy.
While the Supreme Court ruled on March 3 that the notes should remain in circulation until the end of the year, residents don’t have cash and that’s hurting sales at companies from Heineken to Bajaj Auto Ltd.
Inflation accelerating at about 22% in Nigeria, coupled with a shortage of dollars is also raising costs for the company. Nigerian Breweries has raised prices, but not enough to offset the rising cost of inputs, Essaadi said.
Nigerian Breweries, which has been operating in the West African nation since 1946, has nine facilities, about 13,000 distributors and sub-distributors as well as about 800,000 outlets to sell its brands including Star Lager Beer, Legend Extra Stout and Maltina malt drink.
Revenue at Africa’s second-largest brewery by sales increased 26% last year, extending its recovery from a Covid 19-induced slump.
Sales are forecast to rise 14% in 2023, according to six analysts surveyed by Bloomberg. The estimates may change as the impact of the cash crisis extends, according to Abiola Gbemisola, an analyst with FBN Securities Inc.
“Because of the cash issue, we may likely see lower growth in revenue for NBL in the first quarter,” said Gbemisola. “Cash will eventually become available. The Nigerian market, despite the challenges it’s facing, is still a growing market for beer.”
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Some Nigerian banks put the old naira notes back into circulation on Monday after the court’s order.
Meanwhile, other consumer companies have also been suffering.
The cash crisis may also prompt Bajaj Auto, India’s biggest two-wheeler maker by market value, to cut production in its export-oriented plants by 25% as demand for motorcycles slumps in Nigeria, its top export market, the Economic Times reported.
To ease the impact on sales, Nigerian Breweries plans to help some of its registered outlets to procure so-called point of sale devices to encourage electronic payments, Essaadi said.
“We believe that with the demographics of this country, being the biggest economy in Africa, business will come back,” when the cash situation normalizes, Essaadi said.
