Kayode Tokede
Pressure on profitability and productivity of manufacturing firms in Nigeria intensified last financial year as eight companies in the Cement manufacturing and Fast-Moving Consumer Goods (FMCG) spent 24 per cent of their generated revenue on raw materials consumables.
The surge in raw materials cost was primarily driven by shortage of foreign exchange (FX), raw material availability, mundane port operations, and increase in energy cost.
The eight firms include: BUA Foods Plc, BUA Cement Plc, Nestle Nigeria Plc, Dangote Cement Plc, Lafarge Africa Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc and Dangote Sugar Refinery Plc spent a sum of N1.02trillion on raw materials and consumables in 2022, an increase of 25 per cent when compared to N822.22billion in 2021.
Also, the eight firms generated N4.23 trillion revenue in 2022, representing an increase of 25.24 per cent from N3.37 trillion in 2021.
The breakdown of raw materials consumables revealed that BUA Cement Plc spent N24.98billion on raw materials cost in 2022, an increase of nine per cent from N22.91billion in 2021, while Dangote Cement announced N196.52billion raw materials cost in 2022, an increase of 12.06 per cent from N175.4billion in 2021.
Lafarge Africa reported 32 per cent increase on its raw materials cost to N48.99 billion in 2022 from N37.03billion in 2021. On its part, BUA Foods announced N260.18billion raw materials cost in 2022 from N211.21billion in 2021 as
As Nigerian Breweries reported N246.7billion raw materials cost in 2022 from N197.82 billion in 2021, Dangote Sugar Refinery declared N11.03billion raw materials cost in 2022 from N10.01billion reported in 2021.
Commenting, Nigerian Breweries explained that it continued to invest resources in local development, improvement and commercialisation of its agricultural raw materials.
“Our collaboration with relevant local and international research institutes has been expanded to further assess and improve the performance and adaptability of selected registered local sorghum varieties and to develop new sorghum varieties with improved quality for the industry and increased yield for the farmers. To increase the positive impact of local sourcing of its agricultural raw materials, Nigerian Breweries has also continuously expanded its sorghum sourcing areas to new communities, ”company added.
Nestle Nigeria reported N223.68 raw materials cost in 2022, an increase of 37 per cent from N163.744billion in 2021, while Cadbury Nigeria posted N36.7billion raw materials cost in 2022, an increase of 36 per cent from N27.05billion reported in 2021.
The management of Nestle Nigeria said it procured all of its raw materials on a commercial basis from overseas and local suppliers. “Amongst the overseas suppliers are companies in the Nestlé Group.” The company explained in its 2022 results.
According to THISDAY investigation, the eight firms in 2022 generated N745.79billion profit after tax, an increase of 15 per cent from N650.5billion generated in 2021.
Despite emerging as one of the major gainers amid post- COVID-19 pandemic as producers of essential goods, the eight firms showed signs of strain as macroeconomic heads as raw materials cost reduced profit and shareholders return on investment.
Meanwhile, the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf attributed the surge to foreign exchange scarcity, a major factor driving raw materials cost, stressing that Nigerian manufacturing sector is still heavily import dependent.
According to him, “The sector is consequently highly vulnerable to volatilities in the exchange rate. For some of them, import duty on raw materials, port charges, cumbersome ports logistics and also important cost drivers.
In the same vein, the Managing Director, Highcap Securities, Mr. David Adnori said, “Raw materials cost of these firms increased significantly eating deep into their revenue, which caused the slow growth in their profit margin.
“The FMCGs were confronted with high operating costs during this period following the persistent inflationary pressure and FX illiquidity. FX availability and accessibility has remained challenging for manufacturers.”
Analysts have highlighted that naira against the dollar that closed 2022 at N448.05 at the Investors & Exporters Foreign Exchange Market (I & E FX) from N412.99/ Dollar it opened for trading in 2022 and inflation rate closed that 2022 at 21.34per cent from 15.6per cent were key issues affecting the sector last year.
They added that the hike in Monetary Policy Rate (MPC) of the Central Bank of Nigeria (CBN) to 16.5per cent in 2022 from 11.5per cent was another issue that contended with firms in the FMCG, among other sector in the manufacturing industry.
“The unfavorable exchange rate has increased production cost significantly causing manufacturer’s operations to drag, this is because no less that 40 per cent of raw materials, machines and other inputs required for production are sourced using foreign exchange.
“Although Nigeria operates multiple exchange rates for various transactions, manufacturers are still forced to rely on the parallel market to source foreign exchange which is more expensive than the official rate,” Adnori added.
Nigeria, Africa’s largest economy, is currently ranked 131 out of 190 economies in the world on ease of doing business, according to the latest World Bank annual ratings.
Although Nigeria recorded some improvement after moving 15 places from 146 in 2018, stakeholders in the sector, however, project that the country will trend around 135 in the global ranking in 2023.
The Ease of Doing Business ratings ranks countries based on how the regulatory environment is conducive to business operation through simpler and friendly regulations for businesses, and stronger protections of property rights by governments, among other key variables.
Analysts expressed that the high raw materials cost of these companies threatens the existence and continuity of the businesses as they are forced to produce at a higher cost.
“The implication of these challenges highlighted is that it impedes the growth and development of the manufacturing sector, thereby affecting the attainment of the sector’s full potential of massive job and wealth creation, ”said Capital Market Analyst, Mr. Rotimi Fakeyejo said.
He noted that when there is steady energy supply, operating costs of manufacturers fall, leading to the production of cheap but high-quality products that can compete in the local and global market.
