Nigeria likely to loose more Multinationals in 2024 – Report
NIGERIA, Jan 12 – A new report by a financial solutions firm, Cardinal Stone has it that multinational firms in the Fast Moving Consumer Goods (FMCG) sub-sector may leave Nigeria this year if the operating environment does not improve.
According to the report, titled ‘Strategic Resilience: Sailing Through Business Disruptions’, high operating costs would prevail for firms operating in the Fast Moving Consumer Goods sector.
The report also claimed that, the FMCG sector remains significantly exposed to changes in commodity prices, exchange rates, import and clearing duties, and freight costs.
It acknowledged that FMCGs may likely not profit from the moderation in global commodity prices because of the evidential depreciation of naira, which weaken from N422.00/$ in June 2023 to N951.94/$ in December 2023, after the country’s apex bank (CBN) floated the nation’s exchange rate.
The CBN floated the exchange rate in June 2023 to bridge the gap between the official rate and the alternative market and address the challenge of FX scarcity that the country has been battling with.
The report read in parts, “In 2024, we expect companies to continue to re-imagine their operational strategies to achieve cost efficiency.
“We also see legroom for more collaboration between FMCGs to boost economies of scale, product portfolio diversification, revenue and cost synergies, technological innovations, and financial power of the resultant entity.
“The alternative path may eventually degenerate to exit from the operating environment or high-cost segments, similar to the cases with Procter and Gamble, GSK, Pernord Ricord, and Unilever.”
The report noted that weaker currency could heighten diesel costs, as was the case in the first half of 2023, which saw diesel prices rose to a new high of N1,004.98 per litre in the second half of 2023.
It further tipped the drag from higher energy costs to extend into 2024, barring a shock in naira appreciation.
“Similarly, borrowings could be elevated on the combined impact of dollar-denominated debts that could spike when translated to naira and the surge in naira values of operating and machinery costs that are targeted to be funded with foreign currencies.
“The knock-on effect of these changes could translate to an increase in effective interest rates,” the report added.
Biztv24 examines the report from economic perspective and deduced that if the government does not do anything to improve on some of these conditions to ensure these firm stay put, the likelihood of more pressure coming on the naira is a possibility. This may further aggravate the worsen living conditions of already impoverished Nigerians.
Moving forward, the government should ensure the cost of fuel (including PMS and Diesel) is reduced to an extend through local production option. The ripple effect of fuel scarcity or hike in price is not only dare to the Micro, Small and Medium scale Enterprises (MSMEs) but also to other firms which often depends on their private power supply to engaged production.