In a recent development that could shake the Fast Moving Consumer Goods (FMCG) industry, multinational companies are considering exiting the country if the current challenging operating environment persists.
This was highlighted in a report titled ‘Strategic Resilience: Sailing Through Business Disruptions’. by Cardinal Stone, an investment management firm, titled ‘Strategic Resilience: Sailing Through Business Disruptions’
The report paints a grim picture of the FMCG sector, indicating that high operating costs are likely to continue. “The sector is acutely vulnerable to fluctuations in commodity prices, exchange rates, and the costs associated with import duties and freight,” according to the report.
A critical factor exacerbating the situation is the significant depreciation of the local currency. “From N422.00/$ in June 2023, the naira plummeted to N951.94/$ by December 2023,” the report notes, attributing this decline to the Central Bank of Nigeria’s decision to float the country’s exchange rate.
This strategy, initially aimed at narrowing the gap between official and alternative market rates and addressing forex scarcity, seems to have had unintended consequences.
“2024 will be a year of reimagining operational strategies for these companies,” the report showed. It suggested the path forward may include greater collaboration between FMCG companies to leverage economies of scale, diversify product portfolios, and harness technological innovations.
Without such strategies, the report warned, the alternative could be a mass exodus from the market, as seen with industry giants like Procter and Gamble, GSK, Pernod Ricard, and Unilever.
The weakening currency has other ripple effects, notably on energy costs. “The first half of 2023 saw diesel prices hitting unprecedented levels, and this trend is expected to continue into 2024,” the report cautioned.
Furthermore, the report anticipates a continued strain from high energy costs unless there’s an unexpected appreciation in the naira. It also highlights potential challenges with borrowings, especially those in foreign currencies, which could lead to increased effective interest rates.
