News
Higher prices loom as businesses rely more on loans to survive
Nigerians will soon experience another wave of increases in the prices of goods by major manufacturers as most of them now depend more on loans to fund their operations, resulting in higher interest payments and increased cost of production.
Financial Vanguard investigations show that due to scarcity of foreign exchange, general cash flow challenges and other economic headwinds during the period, major manufacturing firms sustained their businesses with bank loans amounting N1.833 trillion in the nine months of the year 2023 , 9M’23.
The amount indicates increased borrowing of about 52.6% higher than the N1.2 trillion in the corresponding period of 9M’22.
Financial experts say the companies may have ended up in a debt trap following the rise in Monetary Policy Rate, MPR regime, sustained by the Central Bank of Nigeria, CBN throughout the review period in order to tame inflation that rose to 28.92 % as at December 2023, a development that triggered rising lending rates across the banking and finance sector.
This development, according to financial experts, indicates that the companies that borrowed huge in the 9M’23 are now caught in a serious debt situation as cost of operating capital is now rising, a situation that will impact their profit negatively, and also restrict their ability to pay higher dividend.
Financial information from 17 leading manufacturing companies listed on the Nigerian Exchange Limited, NGX, showed that the finance cost (interest on borrowing) rose by a significant 332.3% percent to N589.623billion in 9M’23 from N136.379 billion in 9M’22.
The companies include: Nigerian Breweries, Dangote Cement, Lafarge Africa, Guinness Nigeria, Gsk, Beta Glass, Unilever Nigeria, Dangote Sugar, Okomu Oil.
Others are Nestle Nigeria, BUA Cement, Notore Chemicals, NASCON Allied Industries, Cadbury Nigeria, BUA Foods, Vitafoam Nigeria and International Breweries.
Analysts and investment experts have decried the high cost of borrowing from the banks, saying that the capital market remains the best financing option for manufacturers to run on long term funds.
International Breweries led the borrowing chart in absolute term recording N323.25 billion in 9M’23 from N148.99 billion in 9M’22. It was followed by Nigeria Breweries whose borrowing rose to N307.99 billion from N113.69 billion in the corresponding year 2022.
Dangote Cement occupied the third position posting N267.13 billion from N269.19 billion in 9M’22. It was followed by BUA Cement occupying the fourth position as its borrowings rose to N258.26 billion from N97.46 billion while BUA Foods followed as its borrowings surged to N 237.79 billion as against N211.67 billion in 9M’22.
Analysts’ insight
Victor Chiazor, Analyst and Head of Research & Investment at FSL Securities Limited said: “The manufacturing sector will continue to be negatively impacted by the high finance cost, especially given that the banks all responded to the high MPR. Until the Benchmark interest rate is reduced by the CBN, the banks won’t drop their interest rate and the high interest expense will continue to weaken the profitability of manufacturing companies and even throw some of them into loss positions.
“In the course of the year, if we see inflation taper down, the MPC team may begin to ease its hawkish stance and drop the MPR which should lead to a gradual drop in interest rates. However if rates remain high, the real sector of the economy will continue to struggle as the interest rates would be too expensive for businesses to thrive.
Also, though expensive, the option of raising equity capital remains viable especially for those who have impressive earning forecast, strong business model and a compelling story to tell. In the course of the year we may see one or two manufacturing companies raise equity capital from the capital market to support their businesses.”
Commenting on the cost of borrowing, he said: “The astronomical jump in finance cost relative to a midsize increase in actual borrowings by these public companies in a 9-month period of 2023 could have been due to multiplicity of factors around inflation: depreciation of the Naira; re-pricing of loans and other assets by lenders; high input cost; reduction or non availability of suppliers’ credit; etc.
The result of this is more inflationary pressure, as the affected companies are pressured to re-price their earning assets to recover costs or reduce losses.”
On government rendering support to the manufacturing sector, he said: “The government may not be able to assist every sector, except for a few companies who have benefited from CBN intervention funds and single digit interest rate borrowing, most are exposed to more of bank borrowing which will be highly toxic to business operations if interest rates remain elevated.”
Reacting to the increase in borrowing, David Adonri, analyst and Executive Chairman at Highcap Securities Limited, said: ” The manufacturing industry was first battered by the rising inflation throughout year 2023 which escalated their costs. Due to decline in purchasing power of consumers their cost recovery efforts failed to preserve their working capital. Hence, their resort to higher bank credit to keep them alive. With higher credit, finance cost will escalate.
“The second reason behind the balloon of their finance cost is the collateral damage they suffered from floating of the Naira. Their hard currency liability exposures magnified in multiple folds when the Naira suffered heavy depreciation. As a result, they had to borrow more money locally, to meet outstanding obligations.
This year, the factors that pressured them into excessive borrowing may not be replicated. The economy is expected to readjust to a new price level where prices will be more stable. However, to repair their damaged balance sheets, manufacturers may need to refinance their huge debt through the capital market.”
On how government intervention can aid manufacturers, Adonri, said: “The administrative intervention of government in the credit market through CBN has not been very effective. It continues to distort the market mechanism that ought to efficiently allocate credit in the economy. The interventions have also not been appropriately directed to the foundational sectors of the economy.
Fiscal intervention can be by way of subsidy to manufacturers to enhance production while monetary policy should target low interest rate environment. If manufacturing inputs can be internalized through appropriate fiscal measures, then manufacturing cost can reduce to the point where finance cost will become negligible.”
Commenting on the borrowings by manufacturing companies, an investment expert and CEO, Wyoming Capital and Partners, Tajudeen Olayinka, said: “Companies can borrow to improve production capacity and reduce average cost. Where this is the case, such borrowing is considered positive, and could improve fortunes of shareholders of the company. Where such borrowing does not improve production efficiency, it can become negative to the value of the company and make shareholders worse off. This is what most companies try to consider before borrowing from short-term money market or long-term capital market.”
On the benefits of borrowing by manufacturing companies, he said: “Borrowing that improves operational efficiency would naturally benefit customers and other stakeholders. Borrowing must be done to improve shareholders wealth; and customers must have been given thoughtful consideration before embarking on such borrowing.”
However, he lamented that, “Short-term borrowing from banks could be more expensive at this time, especially if we consider the effect of rising inflation and interest rate hike by Monetary Policy Committee of CBN, which has compelled many banks to re-price loans and other financial instruments, leading to higher borrowing costs for firms and public companies. Borrowing from banks could be more problematic at this time.
Regardless of cost implications to public companies, short-term borrowings from banks might have been provided as bridging facilities for more flexible long-term capital already arranged by those companies, or as a way of obtaining working capital. It could also be a sign of weakness in annexing suppliers’ credit by some of those companies.”
On whether the government can aid manufacturers, Adeyinka said: “That could be another way of asking the government to provide financial subsidy, when they are already enmeshed in a fiscal crisis. I think the best way is to allow the market to function, so that assets are properly priced in the long-term interest of the economy.”
The Senate, on Thursday, called on the Nigerian military to deploy sufficient personnel to reclaim Abadam and Marte Local Government Areas in Borno State, reportedly under the control of Boko Haram insurgents.
During Thursday’s plenary, the Senate acknowledged the significant sacrifices made by the military in combating insurgency but expressed concern over the lingering presence of Boko Haram in the two LGs.
This resolution followed a motion presented by Senator Mohammed Tahir Monguno (APC – Borno North), titled “Need to Deploy Adequate Security Personnel to Endangered Local Government Areas in Borno State.”
Senator Monguno highlighted the challenges Borno State had faced due to prolonged insurgency, commending the efforts of the Nigerian Armed Forces in restoring relative peace.
However, he raised concerns about the lack of civil authority and military presence in Guzamala, Abadam, and Marte LGAs, which are predominantly agricultural communities.
Marte, in particular, is known for large-scale wheat and rice production.
Monguno stressed that the insecurity in these areas had caused severe hardship, disrupted local economies, and hindered infrastructure development.
He warned that the absence of security personnel might embolden insurgents to target surrounding communities, potentially reversing the gains made in securing the state.
Backing the motion, Senator Ned Nwoko (PDP – Delta North) emphasised the need for a national dialogue, led by the National Assembly, to understand the root causes of insecurity.
He argued that relying solely on military hardware like attack helicopters was insufficient, urging the government to create platforms for inclusive discussions involving all Nigerians.
Senator Adams Oshiomhole (APC – Edo North) highlighted the need for effective legislative oversight, particularly concerning defence procurements.
He criticised the purchase of Tucano jets instead of attack helicopters, attributing the oversight failure to a lack of scrutiny.
Senator Ali Ndume (APC – Borno South) pointed out that while there was a task force operating in the Chad region, low morale among personnel remained a significant challenge.
He emphasised the importance of motivating security operatives and criticised the allocation of funds to non-critical areas amid the insecurity crisis.
The Deputy Senate President, Barau Jibrin, who presided over the session, thanked Senator Monguno for the motion and commended the military for their sacrifices.
He called on security forces to restore peace to the affected areas, noting the international dimension of insecurity. Barau also praised President Bola Tinubu’s efforts to address the issue on the global stage.
In its resolution, the Senate mandated its Committees on Army and Air Force to ensure the implementation of its call for reinforced security in Abadam and Marte LGAs.
The Arewa Consultative Forum has suspended its national chairman, Mamman Mike Osuman, for making what it describes as an authorised statement concerning the 2027 presidency.
Osuman was quoted as saying during the ACF National Executive Council meeting on Wednesday that the North would support a northern candidate for the presidency in the 2027 general elections.
Reacting in a statement on Thursday, the forum, through its Chairman, Board of Trustees, Bashir Dalhatu and Secretary General, Murtala Aliyu, said Osuman made the statements without consulting or discussing with other leaders and members of the ACF, adding that the statements made only reflected his personal opinion.
ACF, therefore, announced the suspension of Osuman as Chairman with immediate effect and also constituted a Committee to investigate the infractions.
“ACF rejects Mr. Mamman Mike Osuman’s statements in their entirety. For this reason, the leadership of the ACF’s Board of Trustees (BOT) and that of its NEC has decided to place Mamman Mike Osuman on suspension with immediate effect,” the statement read.
Last week, ex-President Olusegun Obasanjo harped on the urgent need for reform and strengthening of the nation’s electoral process.
Obasanjo specifically called for the dismissal of the Chairman of the Independent National Electoral Commission, INEC, Mahmood Yakubu, and officials of the commission at all levels for electoral integrity.
The erstwhile President spoke at the weekend via a recorded video address at the Chinua Achebe Leadership Forum at Yale University, New Haven, Connecticut, United States, saying the electoral system reform is now among the top targets for change in Nigeria.
Obasanjo stressed that Nigerians must ensure that the INEC chairman and his staff were thoroughly vetted, adding that the vetting exercise should yield dispassionate, non-partisan, actors with impeccable reputations.
“As a matter of urgency, we must make sure the INEC chairperson and his or her staff are thoroughly vetted. The vetting exercise should yield dispassionate, non-partisan, actors with impeccable reputations.
“Nigeria must ensure the appointment of new credible INEC leadership at the federal, state, local government and municipal – city, town, and village levels – with short tenures – to prevent undesirable political influence and corruption, and re-establish trust in the electoral systems by its citizens.
“The INEC chairperson must not only be absolutely above board, he must also be transparently independent and incorruptible,” he said.
Obasanjo pointed out that INEC failed to implement the Bimodal Voter Accreditation System and INEC Election Result Viewing Portal during the 2023.
“These technologies were touted by the INEC chairman himself. In the end, these technologies did not fail.
“INEC wilfully failed to use or implement them which resulted in widespread voting irregularities. It was a case of inviting the fox into the hen house,” Obasanjo stated.
However, the Presidency took issue with Obasanjo’s critique of the INEC.
Bayo Onanuga, Special Adviser to President Bola Tinubu on Information and Strategy in a statement on Monday accused him of hypocrisy given his administration’s alleged role in organising what it described as the “most fraudulent election held in Nigeria since 1960.”
“It is hypocrisy writ large when a man who presided over the worst election in Nigeria demands the sack of the leadership of the Independent National Electoral Commission,” Onanuga wrote
DAILY POST reports that the call is a renewal of the controversies that trailed the outcome of the 2023 general elections, including the recently held off-cycle elections in Kogi, Imo and Edo states.
DAILY POST also recalls that the alleged non-compliance with the 2022 electoral law by INEC was one of the grounds on which the presidential candidates of the Peoples Democratic Party (PDP), Atiku Abubakar, and that of the Labour Party (LP), Peter Obi, challenged the declaration of President Bola Tinubu as the winner of the February 25 presidential election.
Although Atiku and Obi lost their petitions at the Presidential Election Petition Court (PEPC) and the Supreme Court, they had argued that INEC did not follow the provisions of the 2022 electoral act and its own rules in conducting the election.
The duo maintained that INEC breached its regulations and guidelines by not deploying technological devices for voter accreditation, verification, continuation, and authentication as required.
However, DAILY POST reported that the Supreme Court particularly acknowledged that the non-functioning of the Result Viewing (IReV) portal of the Electoral Commission may reduce the confidence of the voting public in the electoral process.
“Truth must be told, the non-functioning of the IReV may also reduce the confidence of the voting public in the electoral process,” Justice John Okoro said while delivering the lead judgment in the appeal by the PDP presidential candidate, Atiku.
Recently, Sam Amadi, Director of the Abuja School of Social and Political Thoughts, said the “gross flaws” and “manipulations” in the Edo governorship election were sufficient reasons for the country to have radical and comprehensive electoral reforms.
Amadi had earlier in a post on X suggested that anyone dreaming of becoming president in 2027 is not serious without disbanding INEC.
“Anyone thinking of being the President of Nigeria in 2027 and not thinking of disbanding this @inecnigeria is not serious,” he posted on X.
Also speaking further at a press conference recently in Abuja, he stated that the performance of the INEC in Edo did not inspire confidence that it would do better in the then forthcoming Ondo election.
“There were allegations that election results were manipulated.
“The INEC leadership has assured that they will avoid the mistakes of Edo,” he said.
“There is no reason to trust that they would act honestly to uphold electoral integrity in Ondo.
“The second issue is the procedure of result collation in Edo. We have read reports of forensic reviews of observer groups. We see clearly that the result declared by INEC differs materially from the results uploaded in the IREV.
“This inconsistency is damaging to the integrity of the elections. Furthermore, INEC is issuing certified copies of results that are different from what it has uploaded on the IREV.
“This is alarming. It does not assure us of the integrity of future elections,” he said.
Speaking to DAILY POST, a Public Affairs Analyst and Communication Scholar at Peaceland University, Enugu, Nduka Odo, said the manipulation of results and lack of accountability among INEC officials were serious concerns that needed to be addressed.
Odo opined that the electoral body’s excuses about national infrastructure and readiness were unconvincing.
He stressed that INEC must get its act together and demonstrate strong commitment to free and fair elections.
“INEC’s integrity is once again under fire, and I’m fed up with their constant failures.
“Like former President Obasanjo’s criticism, I agree that INEC’s lack of integrity, especially in electronic transmission of results, is alarming.
“The recent governorship election in Edo State was a critical test for INEC, and from what I’ve seen, they’ve failed miserably.
“Their inability to ensure transparency and fairness in the electoral process is appalling. The manipulation of results and lack of accountability among INEC officials are serious concerns that need to be addressed.
“The fact that some parties didn’t even submit polling and collation agents, yet they’re participating in the election, is a joke.
“The electronic transmission of results is not rocket science, but INEC has made it seem like an insurmountable task.
“Their excuses about national infrastructure and readiness are tired and unconvincing. It’s time for INEC to take responsibility for their failures and ensure that future elections are credible and transparent.
“INEC must get its act together: No more excuses, no more failures. INEC needs to demonstrate its commitment to free and fair elections.
“Accountability is key: INEC officials involved in electoral malpractices must be held accountable. Transparency is essential: Electronic transmission of results must be implemented effectively to prevent manipulation.
“It’s time for INEC to redeem its integrity and ensure that the people’s votes count. Anything less is unacceptable.”
On his part, Onyebuchi Igboke, the Project Manager of Advocacy Partnership for Good Governance and Convener, Office of the Citizens, told DAILY POST that the electoral commission should be for persons of integrity.
Igboke particularly noted that the INEC chairman, Prof. Mahmoud Yakubu dashed the hope of many Nigerians contrary to his promise to transmit presidential election results in real time.
According to him, the electoral system in Nigeria should be reformed, suggesting that the power of the President to appoint the INEC chairman be removed.
He said: “INEC as an institution should be manned only by persons who have integrity. From what was observed from the last election, the INEC chairman, Prof. Mahmoud Yakubu dashed the hope of Nigerians, especially young Nigerians.
“He made a promise severally before the 2023 presidential election to transmit results electronically, not just the transmission of results but in real time.
“However, everyone was disappointed how the results for the presidential election weren’t transmitted as he promised.
“I totally agree with what the former President Olusegun Obasanjo said about the institution lacking in integrity. In a sane clime, the INEC chairman should have resigned after the event of the 2022 general election.
“In the recent off-cycle elections in Kogi, Imo, Ondo, and Edo states, we saw what happened. Is that what we wish to have as an election?
“Election is a serious business because it gives people the opportunity to recruit individuals who will manage their resources, lead them into prosperity, and solve their problems.
“Electioneering in Nigeria should be reformed. This should begin by removing the power of the President to even appoint the INEC chairman.”
Last week, ex-President Olusegun Obasanjo harped on the urgent need for reform and strengthening of the nation’s electoral process.
Obasanjo specifically called for the dismissal of the Chairman of INEC, Mahmood Yakubu, and officials of the commission at all levels the Independent National Electoral Commission, INEC, at all levels for electoral integrity.
The erstwhile President spoke at the weekend via a recorded video address at the Chinua Achebe Leadership Forum at Yale University, New Haven, Connecticut, United States, saying the electoral system reform is now among the top targets for change in Nigeria.
Obasanjo stressed that Nigerians must ensure that the INEC chairman and his staff were thoroughly vetted, adding that the vetting exercise should yield dispassionate, non-partisan, actors with impeccable reputations.
“As a matter of urgency, we must make sure the INEC chairperson and his or her staff are thoroughly vetted. The vetting exercise should yield dispassionate, non-partisan, actors with impeccable reputations.
“Nigeria must ensure the appointment of new credible INEC leadership at the federal, state, local government and municipal – city, town, and village levels – with short tenures – to prevent undesirable political influence and corruption, and re-establish trust in the electoral systems by its citizens.
“The INEC chairperson must not only be absolutely above board, he must also be transparently independent and incorruptible,” he said.
Obasanjo pointed that INEC failed to implement the Bimodal Voter Accreditation System and INEC Election Result Viewing Portal during the 2023.
“These technologies were touted by the INEC chairman himself. In the end, these technologies did not fail. INEC wilfully failed to use or implement them which resulted in widespread voting irregularities. It was a case of inviting the fox into the hen house,” Obasanjo stated.
However, the Presidency took issue with Obasanjo’s critique of the INEC.
Bayo Onanuga, Special Adviser to President Bola Tinubu on Information and Strategy in a statement on Monday accused him of hypocrisy given his administration’s alleged role in organising what it described as the “most fraudulent election held in Nigeria since 1960.”
“It is hypocrisy writ large when a man who presided over the worst election in Nigeria demands the sack of the leadership of the Independent National Electoral Commission,” Onanuga wrote
DAILY POST reports that the call comes fresh from the divided opinions and controversies that trailed the outcome of the 2023 general elections, including the recently held off cycle elections in Kogi and Edo states.
DAILY POST also recalls that the alleged non-compliance with the 2022 electoral law by INEC was one of the grounds on which the presidential candidates of the Peoples Democratic Party (PDP), Atiku Abubakar, and that of the Labour Party (LP), Peter Obi, challenged the declaration of President Bola Tinubu as the winner of the February 25 presidential election.
Although Atiku and Obi lost their petitions at the Presidential Election Petition Court (PEPC) and the Supreme Court, respectively, they had argued that INEC did not follow the provisions of the 2022 electoral act and its own rules in conducting the election.
The duo maintained that INEC breached its regulations and guidelines by not prescribing and deploying technological devices for voter accreditation, verification, continuation, and authentication as required.
However, DAILY POST reported that the Supreme Court particularly acknowledged that the non-functioning of the Result Viewing (IReV) portal of the Electoral Commission may reduce the confidence of the voting public in the electoral process.
“Truth must be told, the non-functioning of the IReV may also reduce the confidence of the voting public in the electoral process,” Justice John Okoro said while delivering the lead judgment in the appeal by the PDP presidential candidate Atiku.
Recently, Sam Amadi, Director of the Abuja School of Social and Political Thoughts, said the “gross flaws” and “manipulations” in the Edo governorship election were sufficient reason for the country to have radical and comprehensive electoral reforms.
Amadi had earlier in post on X suggested that anyone dreaming of becoming president in 2027 is not serious without disbanding INEC.
Amadi’s statement comes after the Independent National Electoral Commission, INEC, had declared the All Progressives Congress, APC’s Monday Okpebholo as winner of the Edo State governorship election last September.
“Anyone thinking of being the President of Nigeria in 2027 and not thinking of disbanding this @inecnigeria is not serious,” he posted on X.
But speaking further at a press conference recently in Abuja, he stated that the performance of the INEC in Edo did not inspire confidence that it would do better in the then forthcoming Ondo election.
“There were allegations election results were manipulated.
“The INEC leadership has assured that they will avoid the mistakes of Edo,” he said.
“There is no reason to trust that they would act honestly to uphold electoral integrity in Ondo.
“The second issue is the procedure of result collation in Edo. We have read reports of forensic reviews of observer groups. We see clearly that the result declared by INEC differs materially from the results uploaded in the IREV.
“This inconsistency is damaging to the integrity of the elections. Furthermore, INEC is issuing certified copies of results that are different from what it has uploaded on the IREV.
“This is alarming. It does not assure us of the integrity of future elections,” he said.
Speaking to DAILY POST, a Public Affairs Analyst and Communication Scholar at Peaceland University, Enugu, Nduka Odo, said the manipulation of results and lack of accountability among INEC officials are serious concerns that need to be addressed.
Odo opined that the electoral body’s excuses about national infrastructure and readiness are tired and unconvincing.
He stressed that INEC must get its act together and demonstrate strong commitment to free and fair elections.
“INEC’s integrity is once again under fire, and I’m fed up with their constant failures. Like former President Obasanjo’s criticism, I agree that INEC’s lack of integrity, especially in electronic transmission of results, is alarming.
“The recent governorship election in Edo State was a critical test for INEC, and from what I’ve seen, they’ve failed miserably.
“Their inability to ensure transparency and fairness in the electoral process is appalling. The manipulation of results and lack of accountability among INEC officials are serious concerns that need to be addressed.
“The fact that some parties didn’t even submit polling and collation agents, yet they’re participating in the election, is a joke.
“The electronic transmission of results is not rocket science, but INEC has made it seem like an insurmountable task. Their excuses about national infrastructure and readiness are tired and unconvincing. It’s time for INEC to take responsibility for their failures and ensure that future elections are credible and transparent.
“INEC must get its act together: No more excuses, no more failures. INEC needs to demonstrate its commitment to free and fair elections.
“Accountability is key: INEC officials involved in electoral malpractices must be held accountable. Transparency is essential: Electronic transmission of results must be implemented effectively to prevent manipulation.
“It’s time for INEC to redeem its integrity and ensure that the people’s votes count. Anything less is unacceptable.”
Credit: DAILY POST
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