Multinational firms in the Fast Moving Consumer Goods subsector may exit the country this year if the operating environment does not improve, according to a new report by a financial solutions firm, Cardinal Stone.
The report, titled ‘Strategic Resilience: Sailing Through Business Disruptions’, said high operating costs would persist for firms operating in the Fast Moving Consumer Goods sector.
According to the report, the FMCG sector remains heavily exposed to changes in commodity prices, exchange rates, import and clearing duties, and freight costs.
It noted that FMCGs might not benefit from the moderation in global commodity prices because of the significant depreciation of naira, which weakened from N422.00/$ in June 2023 to N951.94/$ in December 2023, after the Central Bank of Nigeria floated the country’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 forex scarcity that the country has been grappling with.
The report read in part, “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.”
It added that weaker currency could spike diesel costs, as was the case in the first half of 2023, which saw diesel prices soar to a new high of N1,004.98 per litre in the second half of 2023.
The report 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.
SOURCE: PUNCHNG
