N2.5trn Loan Squeezes Consumer Goods Firms Amid High Interest Rates.
The Nigerian manufacturing industry, especially consumer goods manufacturers, is under immense pressure due to high-interest rates and operational costs. These companies have turned to bank loans to manage cash flow challenges, leading to a combined borrowing of N2.5 trillion in the first half of 2024. This represents a 77.8% increase from the previous year’s N1.7 trillion, driven by inflation and economic challenges.
However, the high borrowing cost has eroded profitability, with manufacturers collectively recording a loss before tax of N406.7 billion in H1’24, a staggering 839.1% increase from the N43.314 billion loss in H1’23. While five companies reported a profit of N158.802 billion, others suffered a combined loss of N565.553 billion. Despite a 66.8% increase in turnover to N2.5 trillion, the revenue boost couldn’t cover rising costs, indicating consumer resistance to further price hikes.
Financial analysts attribute the strain to the Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR) hikes, which have increased borrowing costs for manufacturers. The CBN raised the MPR by 800 basis points this year, bringing it to 26.75%, forcing manufacturers to pay N600.5 billion in loan interest in H1’24, up from N288.4 billion in H1’23—a 108.2% increase.
Analysts warn that while borrowing can boost production capacity and reduce costs, the current economic environment makes short-term borrowing expensive and risky. Government intervention in the credit market has been criticized for distorting market mechanisms, with experts suggesting fiscal measures to reduce manufacturing costs and foster a low-interest-rate environment.
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