Nigeria’s consumer goods sector experienced a highly volatile year in 2024, primarily driven by the sharp depreciation of the naira. The removal of foreign exchange controls and the unification of exchange rates triggered a rapid decline in the currency’s value, impacting production expenses, operating margins, and overall business performance. According to data from the Central Bank of Nigeria, the official exchange rate closed the year at ₦1,535 per US dollar on December 31, 2024, a significant drop from ₦997 per dollar at the end of 2023. This figure represents a 40.9% depreciation of the naira within a year. Additionally, a year-long trajectory highlights a 35.6% drop, as the currency fell from ₦988.46 per dollar on January 2, 2024, to its year-end position at ₦1,535.
Like the official market, the parallel market also reflected a downward trend, with the dollar trading at an average of ₦1,656 per US dollar by the close of 2024, compared to ₦1,164 per dollar at the end of 2023. The naira recorded a 29.7% decline in the black market exchange rate. The sustained naira depreciation undoubtedly created significant financial strain for consumer goods companies in Nigeria. The primary reason is that many companies depend heavily on imported raw materials and foreign-currency-denominated loans. As the country grapples with escalating operational costs, consumer goods companies have struggled to sustain profitability and maintain operations.
In addition to the above, rising inflation is a growing issue. In December 2024, headline inflation hit 34.8%, according to the National Bureau of Statistics. This figure is the highest level recorded in nearly three decades. High inflation means a rise in the costs of goods and services amid weakening purchasing power, which means less demand for certain goods and services. Therefore, it is unsurprising that manufacturers faced a downturn in sales while struggling with growing inventory levels. The Manufacturers Association of Nigeria reported a 12.9% increase in unsold inventory, rising from ₦1.24 trillion in the first half of 2024 to ₦1.4 trillion by year-end.
Companies struggled to pass on price hikes to cash-strapped consumers, further squeezing profit margins. Despite these economic headwinds, eleven consumer goods firms on the Nigerian Exchange Limited collectively achieved a market capitalisation of ₦10.1 trillion by December 31, 2024. These companies represented 16.09% of the total NGX market capitalisation of ₦62.76 trillion at the year’s end. However, these companies continue to face significant hurdles, including a volatile currency market, high inflation, and persistent supply chain disruptions.
Amid the government’s efforts to stabilise the economy, challenges remain. In 2024, the CBN implemented multiple interest rate adjustments to curb inflation and promote financial stability. However, forex scarcity and ongoing currency fluctuations placed additional strain on consumer goods companies, forcing them to navigate rising operational costs and shrinking profit margins.
Impact on Production Costs
The naira’s depreciation triggered an increase in the cost of importing raw materials, putting significant pressure on the operating expenses of consumer goods firms in Nigeria. An analysis of eight major consumer goods companies listed on the NGX indicates that their total operational costs surged from ₦952.32 billion in H1 2023 to ₦1.58 trillion in H1 2024, reflecting a 67% rise.
Also, the currency devaluation had a pronounced impact on finance costs across the sector. The net finance expenses of leading consumer goods firms on the NGX witnessed a 1,345% surge in the first quarter of 2024 compared to the corresponding quarter in 2023. According to the unaudited financial reports of seven publicly traded consumer goods firms, finance costs skyrocketed from ₦32.18 billion in Q1 2023 to ₦465.11 billion in Q1 2024.
It is also crucial to recognise that companies with foreign-currency-denominated debts faced substantial foreign exchange losses due to currency revaluation. During the 2023 financial year, leading consumer goods firms listed on the NGX reported a combined forex loss of ₦839.24 billion. This figure accounts for 18.06% of the ₦4.64 trillion revenue generated within the same period, highlighting the severe financial strain caused by currency fluctuations. As businesses navigated this challenging economic landscape, soaring production expenses and escalating finance costs further eroded profitability across the industry.
Impact on Profitability and Market Performance
With rising production costs amid huge FX losses, there has been immense pressure on the profitability of consumer goods companies. Therefore, it is unsurprising that several firms listed on the NGX reported after-tax losses. For example, Nestlé Nigeria Plc recorded a loss after tax of ₦184.2 billion in the first nine months of 2024, a significant decline from its ₦43.1 billion loss in the same period in 2023. Similarly, Dangote Sugar Refinery Plc saw its after-tax loss rise to ₦184 billion compared to ₦27 billion in the previous year. Cadbury Nigeria Plc also reported a worsening financial position, with a ₦11.8 billion loss, up from ₦10.2 billion in 2023. The brewing industry was not spared from the financial downturn, as International Breweries Plc recorded a ₦112.8 billion loss, increasing from ₦28.5 billion in the prior year. In comparison, Nigerian Breweries Plc reported a ₦149.5 billion loss, up from ₦57.1 billion.
Despite the financial struggles faced by many companies, investor sentiment in the consumer goods sector remained resilient. This optimism was evident in the performance of the NGX Consumer Goods Index, which tracks the stock performance of listed consumer goods firms. In 2024, the index recorded a 54% return, signalling sustained confidence in the sector’s long-term growth potential.
Among the best-performing stocks in the sector were BUA Foods, which surged by 115%, and Unilever Nigeria, which delivered a 123% return over the year. However, not all companies shared in the market rally. For instance, Nestlé Nigeria experienced a 20% decline, while NASCON Allied Industries recorded a steep 42% drop, illustrating the divergent performance trends within the industry in 2024.
How Did Firms Respond?
As these companies battled economic challenges, such as soaring inflation, currency volatility, and weakened consumer purchasing power, they were compelled to rethink their strategies to stay competitive in a turbulent market. However, the challenging business environment fuelled the exits of some multinational companies from the country. Major firms such as Procter & Gamble, GlaxoSmithKline Consumer Nigeria, Equinor, Sanofi, and Bolt Food withdrew from the country, citing economic uncertainties and unfavourable business conditions. Despite these challenges, some firms in the sector adopted various resilience measures, such as strategic pricing adjustments, portfolio diversification, and enhanced distribution networks. Some companies raised prices (for instance, Nigerian Breweries hiked beer prices), while others introduced smaller, budget-friendly packaging options to attract price-sensitive consumers (for example, Reckitt, a consumer goods business known for Dettol and Strepsils, introduced smaller pack sizes).
To illustrate further, PZ Cussons, the British Fast-Moving Consumer Goods manufacturer, was among the hardest-hit companies. The company lowered its profit expectations for 2024, citing the sharp depreciation of the naira as a key challenge for its Nigerian operations. Also, PZ Cussons reduced its dividend payout, attributing the decision to the 70% decline in the value of the local currency in Nigeria. In an April 2024 market update, the company announced an interim dividend of 1.50p, a 44% reduction from analysts’ earlier projections.
Similarly, Unilever Nigeria Plc implemented structural adjustments to improve profitability. The company discontinued its Home Care and Skin Cleansing product lines, shifting focus to more profitable business segments. Following this strategic exit, Unilever leased its factory buildings to a third party under a 10-year agreement, ensuring a steady rental income stream through annual lease payments.
2025 Outlook
Although there seems to be some stability in the FX market, and inflation seems to have eased lower to 24.48% after the country’s consumer price index rebasing, there is still a need for adaptive measures to mitigate the long-term effects of currency depreciation. It is, therefore, crucial for companies in this sector to prioritise local sourcing of raw materials, restructure foreign-denominated debts, and implement stricter cost management strategies.
Consumer goods companies have an opportunity to overcome economic hurdles in 2025 through strategic resilience or by capitalising on an improved economic climate that fosters business expansion. In its 2025 Consumer Goods Outlook Report, Vetiva Capital Management Limited predicts a positive growth trajectory for the sector. However, this growth is hinged on macroeconomic stability and fiscal policies.
Meanwhile, the CBN’s efforts to stabilise the naira seem to be bearing good fruits. If the local currency avoids further depreciation, foreign exchange losses for consumer goods firms could decline, improving profitability in 2025. While challenges persist, the sector’s ability to adapt, manage costs effectively, and leverage opportunities in a shifting economic landscape will determine its profitability and sustainability.
References
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