Multinational companies operating in Nigeria’s Fast Moving Consumer Goods (FMCG) sector may consider exiting the country in 2024 if the current challenging operating environment persists, warns a report by financial solutions firm Cardinal Stone.
The report, titled ‘Strategic Resilience: Sailing Through Business Disruptions’, points to high operating costs as a problem for firms within the FMCG sector.
It has been determined that the FMCG industry is especially prone to changes in freight expenses, import and clearing tariffs, exchange rates, and commodity prices.
The report notes that despite potential global commodity price moderation, the depreciation of the naira, from N422.00/$ in June 2023 to N951.94/$ in December 2023, may block the benefits for FMCGs.
This depreciation followed the Central Bank of Nigeria’s decision to float the country’s exchange rate in June 2023 to address forex scarcity challenges.
According to the report, businesses will keep reevaluating their operational methods in 2024 in an effort to reduce costs.
The report suggests the possibility of increased collaboration among FMCGs to enhance economies of scale, diversify product portfolios, achieve revenue and cost synergies, embrace technological innovations, and bolster financial strength.
However, the report also raises concerns about a potential scenario where FMCGs might exit the operating environment or high-cost segments, pointing at previous cases involving Procter and Gamble, GSK, Pernod Ricard, and Unilever.
The report further pointed out the impact of a weaker currency on diesel costs, with diesel prices reaching a record high of N1,004.98 per litre in the second half of 2023.
It indicates that unless there is a major shock to the naira’s appreciation, rising energy costs might continue until 2024.
Additionally, the report notes that borrowings may increase due to the combined impact of dollar-denominated debts, translating to higher naira values of operating and machinery costs.
This could potentially lead to an increase in effective interest rates, adding to the challenges faced by FMCGs in Nigeria.
