Manufacturers Reel From CBN Reforms as Profit Margins Slump


It is glaring that the Central Bank of Nigeria (CBN) hawkish rendition combined with the unification of exchange rates have debilitated manufacturers as they no longer turn each unit of sales into profit.

Since the coronavirus pandemic crisis and foreign exchange scarcity debacle which started in 2016, sector players have been striving to survive.

These excruciating pains are increasingly becoming unbearable as the unexpected devaluation of the currency in the first week of June has aggravated imported inflation as raw material costs have spiked, and that combined with geopolitical tension and increasing energy costs are a double whammy.

The average net profit margin for the largest and most liquid manufacturers stood negative -22.13 percent in the first nine months of 2023, from a positive figure of 7.50 percent as at September 2022, according to MoneyCentral calculations.

Since eleven big firms posted a loss after tax on the back of foreign exchange revaluation loss, it is not surprising that the index posted the worst performance in more than a decade.

It is obvious that companies no longer manage expenses relative to their sales. On average, a manufacturer spent N1.10 on total costs to produce every N1 of a unit of a product, which means they are no longer breaking even.

Data gathered by MoneyCentral shows the 22 manufacturers collectively incurred N4.30 trillion in total production costs (cost of sales plus operating expenses) as at September 2023, from N3.47 trillion as at September 2022.

BUA Cement’s cost of sales per ton rose by 23.9 percent to N38, 047/ton from N30,713/ton, as at 9M’2022. Energy cost per ton increased by 20.2 percent to N16,803/ton from N13,978/ton during the corresponding period ended 9M’2022.

The company blames spiraling energy costs on results from energy price increases and depreciation effect of the Naira.

Analysts at CSL stockbrokers Limited have raised concerns about the negative impact of CBN’s continuous hiking of interest on manufacturers.

“In our view, the prevailing high interest rate environment and the new reforms of the current administration will suppress growth in the non-oil sector while production in the oil sector has not improved as expected,” said the analysts.

“This informed our decision to revise our 2023 real GDP forecast down to 2.8 percent year on year (y/y) from 3.1 percent previously,” said the analysts.

The manufacturing sector grew modestly by 2.4 percent in 2022, reflecting the negative impact of CBN’s hawkish rendition, especially in the second half of the year. In fact, the sector contracted by 1.91% in Q3 2022, the first contraction since Covid hit in 2020.

While the Monetary Policy Committee (MPC) of the CBN has raised the MPR from 16.5 percent in January 2023 to 18.75 percent in July 2023, Headline inflation has risen to 26.72 percent year on year (y/y) September 2023.

KPMG forecasts that Nigeria’s headline inflation will rise to 30 percent by December 2023, attributing the anticipated increase to recent reforms, such as fuel subsidy removal, and the unification of the foreign exchange market.

There is light at the end of the tunnel for manufacturers because foreign exchange losses are a one of event; in short, they have been magnifying sales, thanks to a hike in the price of key products, but there is an extent to which higher input costs are pass on to a beleaguered consumers.

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