Some of Nigeria’s top manufacturers have spent about N1.94 trillion on repaying loan principals and interests. This marks a 188 per cent year-on-year increase from the N672 billion spent by these companies in the first half of 2023, as manufacturers struggle with high interest rates.
According to a BusinessDay analysis, Dangote Cement repaid the highest amount of loans and interest in H1 2024, as it spent about N708 billion on principal and interest repayments. Dangote Cement spent N90.3 billion on interest payments and N618 billion on the repayment of loans.
The company was followed by BUA Foods which spent about N319 billion on loan repayment within the period under review.
Flour Mills of Nigeria also spent about N221 billion on repaying loans, however, this figure represents the total amount spent by the group for the financial year ending June 30, 2024.
In the analysis carried out by BusinessDay, the cash flow statements of companies in the consumer goods, agriculture, industrial goods, and brewery sectors were reviewed. The amount spent on loan repayments during this period is reflective of the high interest-rate operating environment, with the country’s benchmark rate at a whopping 26.75%.
At its most recent Monetary Policy Committee meeting, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) to 26.75% in response to escalating inflation. Since then, inflation has eased for two consecutive months, falling to 32.15% in August, down from 33.4% in July.
Dr Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise speaking on the subject noted,
“In a bid to carry out inflation targeting, this present CBN administration has been keen on rate hikes, and that has put interest rates to around 30% or more. Hence, the cost of funds under this CBN administration has gone up dramatically, and there hasn’t been much traction in the area of development finance, I’m talking about these much cheaper intervention funds. Those are not as available as they used to be under the former CBN governor.”
According to data tracked by BusinessDay, Nigerian Breweries spent N173.4 billion on loan repayments in H1 2024, however, a decline from N189.7 billion spent in the first half of 2023. BUA Cement spent N114.3 billion on repaying loans which occurred as term loans, overdrafts, and debt securities.
Notore Chemical Industries spent about N104.4 billion in interest payments during the half-year, in contrast with N33.1 billion spent on principal and interest payments in H1 2023.
Nestle Nigeria spent N77.3 billion on repaying some of its bank loans even as the company received about N69.2 billion in new loans during the half-year. International Breweries spent about N598 million on paying back loans in the first half of 2023, however, this figure ballooned to about N69.7 billion in the first half of 2024.
While manufacturers are grappling with heightened interest rates and expensive financing figures, players in the financial sector have been raking in massive profits. Coming off a record-breaking 2023, the bumper profits took a new level for banks in the first half of 2024.
Six Nigerian banks—GTCO Holdings, Zenith Bank, Stanbic IBTC Holdings, FBN Holdings, Wema Bank, and FCMB Group—reported a combined net interest income of N2.065 trillion in the first half of 2024. This represents a 142% year-on-year increase compared to the N852.6 billion recorded in the same period of 2023.
Dr Muda noted, “This phenomenon has negatively affected the manufacturing sector, as high borrowing costs translate into higher operating expenses, which ultimately drives up the prices of goods. The increase in prices reduces demand, which in turn lowers profit margins for these companies.”
The hike in the cost of funds in Nigeria has been reflected in the Stanbic IBTC Purchasing Manager’s Index, as Nigeria’s PMI has failed to hit the 50 level since June. It was noted in August’s report that business conditions in the private sector were stagnant during the month.
To deal with the challenges of expensive financing coupled with inflationary pressures, Nigerian manufacturers are increasingly opening up to alternative financing models. For example, the breweries have turned to the capital markets to raise funds as they seek to cut their FX losses and lower their debt costs.
They have also adopted price increases as noted in the Stanbic IBTC Bank PMI report for August,
“Companies continued to contend with sharply rising input costs, with the rate of inflation quickening since July. In turn, firms increased their selling prices at a faster pace.”
