Headlinenews.news has reported that multinational corporations within the Fast Moving Consumer Goods (FMCG) sector may contemplate leaving Nigeria this year unless there is a significant improvement in the current operating conditions, according to a recent report from financial solutions firm Cardinal Stone.
Titled ‘Strategic Resilience: Sailing Through Business Disruptions,’ the report underscores the substantial challenge posed by persistently high operating costs for FMCG firms in Nigeria. The sector, heavily affected by fluctuations in commodity prices, exchange rates, import and clearing duties, and freight costs, may not benefit from the global moderation in commodity prices due to the substantial depreciation of the naira.
The report highlights the depreciation of the naira, which fell from N422.00/$ in June 2023 to N951.94/$ in December 2023, following the Central Bank of Nigeria’s decision to float the exchange rate. This move aimed to narrow the gap between the official rate and the alternative market and address the persistent forex scarcity challenge in the country.
The report anticipates potential collaboration among FMCGs to enhance economies of scale, diversify product portfolios, achieve revenue and cost synergies, introduce technological innovations, and strengthen the financial position of the resulting entity. However, it also cautions that an alternative scenario might involve firms exiting the operating environment or withdrawing from high-cost segments, citing previous cases involving Procter and Gamble, GSK, Pernod Ricard, and Unilever.
Furthermore, the report highlights potential challenges stemming from a weaker currency, including an increase in diesel costs. Diesel prices reached a new high of N1,004.98 per litre in the second half of 2023 due to a weakened currency. Additionally, the report foresees the drag from higher energy costs extending into 2024 unless there is a surprising naira appreciation.
