In a recent report titled: ‘Strategic Resilience: Sailing Through Business Disruptions,’ financial solutions firm CardinalStone has sounded the alarm on the possible departure of more multinational firms from Nigeria’s Fast Moving Consumer Goods (FMCG) subsector in 2024. The report highlights persistent high operating costs, making the FMCG sector susceptible to various economic factors.
According to the report, the FMCG sector’s vulnerability stems from its exposure to changes in commodity prices, exchange rates, import and clearing duties, and freight costs. Despite a global moderation in commodity prices, the depreciation of the naira, from N422.00/$ in June 2023 to N951.94/$ in December 2023, could negate potential benefits.
The report suggests that multinational FMCG companies may need to reimagine operational strategies for cost efficiency, emphasizing collaboration between companies to enhance economies of scale, diversify product portfolios, and achieve synergies.
“In 2024, we expect companies to continue to re-imagine their operational strategies to achieve cost efficiency,” stated the report.
Highlighting the potential consequences of inaction, the report draws parallels with previous exits, including Procter and Gamble, GSK, Pernod Ricard, and Unilever, signaling a possibility of exits from the operating environment or high-cost segments.
“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,” added the report.
The weakened currency could result in increased diesel costs, as experienced in the first half of 2023 when diesel prices soared. CardinalStone expects the drag from higher energy costs to extend into 2024 unless there is a significant 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,” explained the report.
Concluding on a cautionary note, the report foresees an increase in effective interest rates, urging multinational FMCG companies to navigate the complex economic landscape for sustainability in Nigeria in 2024.
