Four FMCG firms incur N116bn operating expenses in 2023

The combined operating expenses of four manufacturers in the fast-moving consumer goods industry rose to N116.1 billion last year from N108.2 billion in 2022, according to their latest financial statements.

The firms are Cadbury Nigeria Plc, BUA Foods Plc, Unilever Nigeria Plc and International Breweries Plc.

“The cost of manufacturing is rising daily owing to scarce and unavailable manufacturing inputs that continue to shrink profitability and threaten the existence of the critical sector of the economy,” Francis Meshioye, president of Manufacturers Association of Nigeria (MAN).

He said more worrisome is the fact that the sector that should propel job creation, productivity, and economic growth is enmeshed with a series of challenges that constantly limit its contribution to the Gross Domestic Product.

“Such challenges as epileptic power supply, insecurity, inadequate infrastructure, shortage of foreign exchange and naira depreciation are prevailing issues that are impacting negatively on the sector,” he added.

Israel Odubola, a Lagos-based research analyst, said inflation and naira devaluation are the two factors that led to the increase in operating expenses.

“Elevated operating expenses must have been largely influenced by galloping inflation which the country has been experiencing,” he added.

Further analysis of the financial statements shows that Cadbury Nigeria and BUA Foods recorded the highest growth in operating expenses of 23.7 percent and 20.7 percent respectively. Unilever Nigeria had 2.9 percent and International Breweries had 2.4 percent.

President Bola Tinubu in May scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.

But his actions have worsened inflation currently in double-digits and at the highest level in at least 20 years. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

Data from the National Bureau of Statistics shows that headline inflation rose to 28.92 percent in December from 28.20 percent in the previous month.

In August, the Manufacturers Association of Nigeria (MAN) said manufacturing activities continue to suffer due to the persisting scarcity of forex and further depreciation of the naira.

“Only 14.7 percent of manufacturers enumerated claimed that the rate at which forex was sourced improved in Q2; 66 percent disagreed while 19.3 percent were not sure if forex sourcing had improved in the quarter under review,” it said.

The association added that the lingering forex scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilization since the importation of non-locally produced critical input has become a nightmare.

“The government has to address the root cause of this problem by giving priority to manufacturers. Manufacturing is the bedrock of any economy. And if you are failing in that space, you will trigger inflation and unemployment which could result in a decline in revenues,” Segun Ajayi-Kadir, director-general of MAN said.

Over the past eight years, several manufacturers, especially in the fast-moving consumer goods industry, have either left the country or stopped production of some of their products as a result of the difficult operating environment.

Problems such as rising interest rates, surging inflationary pressure, and foreign exchange volatility are impacting input costs, operating expenses and the general profitability of businesses in Africa’s biggest economy.

Some of the companies that have exited the country are Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries and Stone Industries.

In December, Unilever, which started operations in the 1920s, stopped the production of its legendary OMO, Sunlight and Lux home and skincare brands in a bid to cut costs to concentrate on higher growth opportunities.

In the second half of 2023, at least four multinationals have announced plans to exit Nigeria in 2024. They are Sanofi, Equinor, GlaxoSmithKline Consumer Nigeria and Procter & Gamble.

Over the last few months, there has been a consistent increase in exit plans or a reduction in involvement in the Nigerian market by the multinationals, and this trend is worrisome, said Chinyere Almona, director general of Lagos Chamber of Commerce and Industry, said.

She added that in Nigeria, lingering foreign exchange scarcity, poor power supply, port congestion, multiple taxation, insecurity, and poor infrastructure, among others, have taken a toll on many businesses in the country.

Analysis of data from individual firms