The net finance costs for major consumer goods companies listed on the Nigerian Exchange Group (NGX) skyrocketed by 1,345% in the first quarter of 2024 compared to the same period in 2023.
Unaudited financial statements from seven prominent consumer goods firms reveal a staggering rise from approximately N32.18 billion in Q1 2023 to N465.11 billion in Q1 2024. Nestle Nigeria Plc experienced the most dramatic increase, with net finance costs soaring from N3.74 billion to N217.01 billion, marking an increase of over 5000%.
Cadbury Nigeria Plc saw a significant turnaround, shifting from a finance income of N380 million in Q1 2023 to incurring a finance cost of N13.21 billion. Similarly, Dangote Sugar’s finance costs surged from N5.47 billion to N120.63 billion, representing a rise of over 2,105%.
Finance costs for Nigerian Breweries Plc rose by 366%, climbing from N19.52 billion to N90.84 billion in the first quarter of 2024. BUA Foods Plc also increased from N2.12 billion to N15.01 billion.
International Breweries saw its net finance costs rise from N1.14 billion to N8.87 billion. At the same time, Unilever Nigeria Plc reversed its fortunes from a finance cost of N396 million in Q1 2023 to a finance gain of N516 million in Q1 2024.
Causes of the Surge in Finance Costs
While the 600 basis points increase in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) contributed significantly, exchange rate revaluation played a predominant role, particularly affecting companies with foreign currency loans (FCY). Higher interest rates further exacerbated the financial burden on these companies.
Mr Tajudeen Ibrahim, Director of Research at Chapel Hill Denham, highlighted the impact of exchange rate depreciation and advised companies to explore capital markets for funding, which he suggests could offer more favourable terms than traditional bank loans.
Economic Context and Policy Measures
Despite the severe exchange rate volatility, with the naira fluctuating between N1,035/$ and N1,309/$ in the first quarter, the CBN adopted a hawkish stance on monetary policy. The MPR was raised by 600 basis points in February and March 2024, reaching 24.75%, aimed at curbing inflation and stabilizing the foreign exchange market.
Governor Yemi Cardoso defended the rate hikes, emphasizing their role in attracting Foreign Portfolio Investments (FPIs) and supporting the currency. However, these measures have sparked debate within the business community, with concerns raised by entities like the Centre for the Promotion of Public Enterprise (CPPE) and the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) about the potential adverse effects on economic conditions and inflation.
