Supply chain and forex challenges hit Nestlé operations in Nigeria

This showed that Nestlé continues “to be at the mercy of a foreign exchange volatility that hurt profit and has left its balance sheet battered for more than a year now”, reports the Premium Times Nigeria newspaper. 

Converting Nestlé Nigeria’s foreign currency debt obligation into naira, the country’s base currency, more than doubled to N285.3-billion during the period under review. One naira equals 0,00060 US dollars. 

Foreign currency-denominated borrowings constitute more than half of the company’s liabilities in Nigeria. 

“The company’s dollar obligations leapt in naira terms during the period as monetary authorities in Nigeria executed a one-off devaluation of the local currency in January, while a limited supply of the greenback further weakened the naira,” Premium Times Nigeria says. 

Revenue climbs despite weak economy 

Despite the weak local economy, Nestlé Nigeria’s revenue for the period climbed 67.8% to N685.3 billion in the period under review. 

However, cost of sales increased due to a significant rise in import costs of the raw materials required for business operations in the country. 

According to news agency Reuters, the company is working to reduce its supply chain exposure by sourcing alternative raw materials such as cassava starch to replace imported corn starch. It is also now sourcing turmeric locally. 

“Nestlé’s big issue is the fx-denominated loans, whose costs have soared due to the devaluation of the naira. Furthermore, fx (foreign exchange) losses have risen by 124%,” comments Trendtype, the emerging markets consultancy. 

Last month, the World Bank said Nigeria’s struggling economy is beginning to show positive results from the economic reforms being implemented by President Bola Tinubu. 

This provides a glimmer of positivity for the country’s consumers and business community, beset by a range of issues including high inflation, lack of market confidence, reduced spending on FMCG goods, and a shortage of foreign exchange.