Consumer products companies in Nigeria are struggling with rising financing costs, which increased by 56% in 2024 due to the central bank’s interest rate hikes, which have driven borrowing prices to multi-year highs.
Analysts caution that growing debt costs reduce business margins and could result in higher consumer product costs.
The impact of the CBN’s hawkish policy was demonstrated last year when the total financing costs of eight consumer goods companies monitored by BusinessDay rose to N811.7 billion.
According to Bolade Agboola, a consumer goods analyst at ChapelHill Denham, “the devaluation of the Naira on FX-denominated loans and the high interest rate environment increased the finance cost for the fast-moving consumer goods firms.”
According to Uzo Uchenna, a marketing professor at Lagos Business School, the rise in interest rates in an attempt to control inflation has increased finance expenses.
He claimed that many businesses are dealing with high input costs, which has caused the cost of doing business to climb while revenues have decreased, and that some consumer goods companies need to borrow more to handle their cash flow issues.
“FMCG companies can control rising borrowing costs by reorganising their product portfolios to eliminate low-return and high-cost products. It is possible to assess idle machinery and inventory, and all of these will need business models to save waste and increase profits,” he said.
To control persistently high inflation, which averaged 32% during the year under review, Nigeria’s central bank raised benchmark interest rates from roughly 18% in July 2023 to 27.5 percent by the end of 2024.
The consumer goods company found it challenging to borrow due to the interest rate hike. Borrowing became more costly due to the rising cost of debt servicing.
Five of the eight consumer products companies examined saw rises in their financing costs over the investigation period, with three exceptions.
The three outliers are Unilever Nigeria, which saw a 97.8% fall in financing costs, Cadbury Nigeria, which saw a 41.2 percent drop, and Nascon Allied Industries, which saw an 18.06 percent drop.
The largest increases in financial costs were 529.4% for Champion Breweries, 197.5% for Guinness Nigeria, 68.22% for Nestle Nigeria, 49.4% for Dangote Sugar Refinery, and 14.9% for BUA Foods.
Abiodun Keripe, managing director at Afrinvest Consulting Limited, stated that the two main factors influencing the cost of obtaining financing for consumer products companies are changes in interest rates and the impact of devaluation.
Economic challenges faced by Nigerian consumer products companies include the devaluation of the Naira, which has resulted in a mountain of foreign exchange losses.
