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More Multinationals May Exit Nigeria Market In 2024 — Report

by `
January 12, 2024
in Business
FMCG - Fast Moving Consumer Goods acronym  business concept background. vector illustration concept with keywords and icons. lettering illustration with icons for web banner, flyer, landing page

FMCG - Fast Moving Consumer Goods acronym business concept background. vector illustration concept with keywords and icons. lettering illustration with icons for web banner, flyer, landing page

 

More multinational firms may exit Nigeria in 2024, warns a report dated January 12, 2024, by financial solutions firm Cardinal Stone.

The report, titled ‘Strategic Resilience: Sailing Through Business Disruptions,’ emphasizes that high operating costs are expected to persist for companies in the Fast Moving Consumer Goods (FMCG) sector.

According to the report, the FMCG sector is highly vulnerable to fluctuations in commodity prices, exchange rates, import and clearing duties, and freight costs.

The report notes that FMCGs may not benefit from the moderation in global commodity prices due to the significant depreciation of the naira, which dropped from N422.00/$ in June 2023 to N951.94/$ in December 2023, following the Central Bank of Nigeria’s CBN) decision to float the exchange rate.

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The report anticipates that companies will need to reimagine their operational strategies for cost efficiency in 2024. Collaboration between FMCGs is suggested to boost economies of scale, product portfolio diversification, revenue and cost synergies, technological innovations, and financial strength.

Alternatively, the report warns of a potential scenario where companies may exit the operating environment or high-cost segments, similar to previous cases involving Procter and Gamble, GSK, Pernord Ricord, and Unilever.

It said, “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 highlights the possibility of increased diesel costs due to the weaker currency, citing the example of diesel prices reaching a new high of N1,004.98 per litre in the second half of 2023.

It predicts that the drag from higher energy costs may extend into 2024 unless there is a significant appreciation of the naira.

The report also noted the potential elevation of borrowings, driven by the combined impact of dollar-denominated debts translating to naira and the surge in naira values of operating and machinery costs funded with foreign currencies.

The overall impact of these changes could lead to an increase in effective interest rates.

“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

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