Major consumer goods companies, including Cadbury, Guinness Nigeria, and Nestle, faced a collective loss of N472.3 billion due to naira depreciation in the first nine months of 2023, according to a report by Meristem.
The high inflation rate had a significant impact on production costs in the consumer goods sector, especially affecting food and beverage manufacturers. The increased costs of essential raw materials like grains, dairy, and meat directly influenced production, forcing companies to either absorb the expenses or pass them on to consumers through higher prices.
For companies heavily reliant on importing raw materials, the weakened Naira resulted in substantially higher import bills, leading to a significant rise in production costs. Additionally, businesses with foreign-currency-denominated debts, such as Nigerian Breweries, Nestle Nigeria, Guinness Nigeria, and Cadbury Nigeria, faced higher debt burdens and more expensive letters of credit.
This strain on profitability caused several companies to report after-tax losses for both Q2:2023 and Q3:2023, totaling NGN 472.35 billion in foreign exchange losses as of 9M:2023.
Associate Professor Olusegun Vincent, a finance expert at the Pan-Atlantic University, Lagos, attributed the losses to foreign currency-denominated commitments made by these companies. He emphasized the need for companies to hedge against currency devaluation through measures like investments in foreign currencies and avoiding excessive foreign debts to mitigate the impact of such losses.