The manufacturing sector grapples with a significant 400% surge in net foreign exchange losses, reaching N466 billion in the nine months ending September. This increase underscores the severe impact of the current foreign exchange (Forex) market regime, compounded by challenges such as the removal of the oil subsidy and the Russia/Ukraine war. Industry insiders emphasize that the sector is now facing financial strain due to losses incurred from exchange rate revaluations.
Financial reports from the top 17 manufacturing companies listed on the Nigerian Exchange Limited (NGX) reveal a complex scenario. While these companies experienced growth in gross earnings, attributed to price increases in their products, their profits witnessed a sharp decline. Data extracted from the financials of these major manufacturing firms on the Exchange indicates a substantial net foreign exchange loss of N466.02 billion in the nine months ending September 2023 (9M’23). This figure reflects a staggering increase of nearly 400% compared to the N93.219 billion loss recorded in the same period of the previous year (9M’22).
The combined gross earnings of these firms exhibited a 23.4% growth, reaching N4.4 trillion in 9M’23, up from N3.6 trillion in 9M’22. However, despite this revenue increase, the companies reported a significant 24.6% decline in combined Profit Before Tax (PBT), amounting to N505.148 billion in 9M’23, down from N670.089 billion in 9M’22.
Cost of consumer goods
The impact of the manufacturing sector’s challenges is evident in the rising costs associated with producing essential consumer goods. These goods, including foods and beverages, toiletries, over-the-counter medicines, cleaning and laundry products, plastic goods, and personal care products, have witnessed price increases. Manufacturers adjusted their product prices in response to inflationary pressures on operating costs. However, this has led to a reduction in consumer patronage, as the purchasing power of consumers has been significantly affected by inflation.
Compounding these challenges are the losses incurred in foreign exchange revaluation. The higher exchange rates have elevated the costs of foreign inputs, compelling manufacturers to make difficult decisions such as closing some production lines or reducing output below break-even points. This complex scenario further contributes to the financial strain experienced by the manufacturing sector.
According to data from the National Bureau of Statistics (NBS), Nigeria’s inflation rate reached 26.72% at the close of 9M’23. Subsequently, it has further increased to 27.3% as of October 2023 and is anticipated to continue rising through the current month, possibly persisting until the end of the year.
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Additionally, the value of the Naira against the US Dollar, which was at N448.04/US$ at the beginning of 2023, experienced a significant decline to N832.32/US$ by the end of 9M’23. This depreciation followed the foreign exchange reforms implemented by the Central Bank of Nigeria (CBN) in mid-June.
Foreign investors in manufacturing pulling out
Persistent foreign exchange scarcity, impacting the ability to import raw materials, has led to price hikes by Cadbury Nigeria. Similarly, GlaxoSmithKline (GSK) Nigeria initially raised prices but is now considering ending manufacturing operations in Nigeria, exploring a third-party direct distribution model for pharmaceutical products. Unilever Nigeria has also discontinued manufacturing certain homecare and skin-cleansing brands. Recently, Procter & Gamble (P&G) announced plans to discontinue manufacturing operations in Nigeria due to challenging operating conditions.
Blue chips bleeding
Prominent manufacturing companies, particularly multinationals, faced substantial forex revaluation losses. Nestle Nigeria, for instance, incurred a staggering N127.5 billion forex revaluation loss, resulting in a loss before tax of N56.7 billion, despite an 18.9% increase in gross earnings to N396.6 billion. Dangote Cement experienced a significant forex revaluation loss of N99 billion but still achieved a surprising 20.5% rise in profit to N404.9 billion. Nigerian Breweries reported a forex revaluation loss of N86.8 billion, contributing to a total loss of N78.2 billion, despite a modest 2.1% growth in gross earnings to N401.7 billion.
International Breweries faced a N39.9 billion forex revaluation loss, leading to operating losses before tax amounting to N43.5 billion. This was despite a 14.6% increase in gross earnings to N183.8 billion. BUA Foods reported a forex revaluation loss of N33.3 billion, moderating its profit growth to 50% at N111.4 billion. BUA Cement experienced a N24.8 billion forex revaluation loss, resulting in a 3.4% decline in profitability to N85.7 billion, despite an increase in gross earnings to N335.9 billion.
Cadbury Nigeria faced a significant forex revaluation loss of N20.7 billion, resulting in a declared loss of N10.2 billion, despite a 39.2% increase in gross earnings. GlaxoSmithKline reported a N11.3 billion forex revaluation loss, causing a decline in profit before tax to N0.722 billion and a massive reduction in gross earnings to N10.9 billion. Lafarge Cement experienced a N9.4 billion forex revaluation loss but reported an increase in gross earnings to N289.1 billion and a 13.4% growth in profit before tax to N61.2 billion.
Unilever Nigeria faced a forex revaluation loss of N2.9 billion, but its profitability rebounded by 937.4% to N4.9 billion, driven by increased gross earnings. Vitafoam experienced a forex revaluation loss of N3.8 billion, contributing to a 14.4% decline in profit to N6.2 billion despite a rise in gross earnings. Okumu Oil recorded a forex revaluation loss of N2.9 billion, but its profit before tax grew by 18.7% to N29.2 billion, accompanied by an increase in gross earnings.
Guinness Nigeria reported a 5.6% decrease in profit to N3.8 billion, influenced by a N1.9 billion forex revaluation loss, despite growth in gross earnings. Notore Chemical suffered a forex revaluation loss of N1.8 billion, resulting in a significant rise in losses and a decline in gross earnings. Nascon Allied had a slim forex revaluation loss of N0.6 million, achieving a massive 282.0% growth in profit, driven by increased gross earnings.
Surprisingly, Dangote Sugar did not incur any forex loss, with a 7.4% rise in gross earnings but ended up with a loss before tax of N41.3 billion, contrasting with a profit in the same period of the previous year.
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