Connect with us

News

Higher prices loom as businesses rely more on loans to survive

Published

on

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.

Advertisement

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.

Advertisement

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

Advertisement

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.

Advertisement

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.

Advertisement

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.”

Advertisement

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.”

Advertisement
Continue Reading
Advertisement

News

HoR Minority Caucus decries killings in Plateau, Benue states, urges immediate presidential decisive actions

Published

on

 

The Minority Caucus in the House of Representatives has expressed serious concerns over killings in Plateau and Benue states demanding immediate presidential decisive actions.

This was contained in a statement jointly signed by leaders of the caucus, Rep Kingsley Chinda, leader, Rt. Hon. (Dr) Ali Isa J.C
Minority Whip ,Rt. Hon. Aliyu Madaki Deputy Minority Leader ,Rt. Hon. George Ozodinobi
Deputy Minority Whip.

The caucus in the statement outrightly condemned the disturbing trend of killings, maiming, and kidnapping of innocent people across the country.

” Following the killings of over 50 people in Bokkos, Plateau state; loss of many lives in twin attacks in Otukpo, Benue state, coming a few days after the Uromi, Edo state unfortunate incident, the Caucus is seriously worried about these growing acts of brigandage and unprovoked attacks on law-abiding citizens.

The Caucus is deeply concerned that with reckless abandon, deliberate disrespect for human lives, and disregard for the constitution of the Federal Republic of Nigeria, these marauders inflict merciless torture, unexplainable pains, and callous killings of helpless, and defenceless Nigerians.

These gruesome murders and the shedding of the blood of innocent lives happening in quick successions in three locations across the country, stands condemnable by every conscionable Nigerian.

The ferociousness and sporadic nature of the vicious actions perpetrated by yet unknown persons remains shocking.

Worried about the dangers this portends to the security of lives and properties of Nigerians; which is the main purpose of government, the Caucus calls on President Bola Tinubu to take deliberate, intentional, and timely decisions towards nipping the disturbing tide in the bud.

Good, he has directed that the perpetrators should be apprehended. However, given the severity of these incidents, and implications on national security, the Caucus urges the president; through the National Security Adviser to ensure that all security agencies embark on comprehensive and strategic collaboration towards arresting those involved in these heinous and gory incidents.

The government should ensure the immediate release of the numerous innocent people that were kidnapped during the dastardly incidents.

The Caucus commiserates with the government, and people of Plateau, and Benue states over the unfortunate incidents. The Caucus also expresses deep condolences to the families of the victims, and pray for the quick release of those kidnapped.

Finally, as a responsive and responsible group of lawmakers, the Caucus promises to pursue legislative actions; where and when necessary towards finding realistic solutions to these negative developments in our country.

Continue Reading

News

OERAF held memorial lecture on conflict resolution, security/safety of community in Nigeria

Published

on

 

The Olotu and Rowland Ekuogbe Akpodiete Foundation (OERAF) on Tuesday 8th April, 2025 held memorial lecture on conflict resolution and security/safety of community in Nigeria, in honour of late chief Ekuogbe Rowland Akpodiete Ph.D, who was born on April 4th 1924 and passed on April 9th 1995.

The event which took place at the popular Ughelli Kingdom Hall, witnessed several brilliant security experts and government functionalities.

Presenting his brief opening speech, the Executive Director of Olotu and Rowland Ekuogbe Akpodiete Foundation, SPY CSP Olotu Otemu Akpodiete Ph.D (JP) revealed that over the years, the foundation has been touching lives and rendering community impact services across board.

He maintained that his late grand father was a great community leader per excellence and until his death, he was the spoke person (Otota) of the great Ughelli Kingdom. which is why as we celebrate his remembrance, I decided to use the opportunity to impact more lives.” He added.

On his part, the guest speaker of the event, Mr Sylvester Obose, CSS,MNIIS dealt wonderously on the topic.

According to him, Mr Sylvester said the training focuses on the definition, causes of conflict, and dynamics of conflicts.

He further said that the goal was to increase participants knowledge of the concept and study of conflict and conflicts prevention.

He concluded that the safety and security of our community is something that is of paramount importance. By implementing those measures presented to you today, everyone of us stand a better chance of making community safe and secured.

Dr Wilton T. Harry, MIS, CPP,DFCSI,FNIS, also spoke extensively on the same topic during the security training. He posited that the security of lives and properties is a collective responsibility.

The OERAF Executive Director also use the medium to register several others into the Delta State Contributory health insurance scheme.

Dignitaries present during the training were: Olorogun Major Patrick A. Egone Rtd, member Delta State Advisory Council, Chief Emmanuel Ogobene, member Delta State Advisory Council, Mr Edwin Asima, LGSC, Ughelli North Local Government, Chief. Mrs Grace Akpodiete, Deaconess Florence Enughwure, Bar. Agboka Akpodiete- Omale.

Other highlights of the event was the organizing of raffle draws for all the communities present and Ughelli Kingdom VGN, where Erhuwarien Community in Ughelli South LGA and Ekredjebo Community in Ughelli North LGA won security communication gadgets.

Continue Reading

News

NLC Warns Abure to Step Aside, Urges LP Members to Be on Standby

Published

on

 

By  Gloria Ikibah

The Nigeria Labour Congress (NLC) has issued a stern warning to Julius Abure, following the Supreme Court ruling on April 4, 2025, which declared the tenure of Mr. Abure and his National Working Committee (NWC) as expired and no longer legally recognized.

Despite the court’s clear ruling, Mr. Abure has continued to release statements insisting he remains the chairman of the Labour Party (LP). The NLC has strongly condemned his actions, describing them as “an affront” to the rule of law and the authority of Nigeria’s highest court.

In a statement signed by the NLC President, Comrade Joe Ajaero, the Congress accused Abure and his supporters of “crass disdain for decency” and warned that the patience of Nigerian workers and genuine LP members is wearing thin.

“The current affront of Mr. Julius Abure and co-travellers against the law… has convinced those who doubted our earlier position that Mr. Julius Abure and the few miscreants following him have sworn themselves to utter impunity,” the statement read.

The NLC also debunked allegations that it was planning to attack Labour Party offices, calling such claims false and a distraction from the real issue of compliance with the Supreme Court judgment.

“We use this medium to put every Nigerian worker, Labour Party member, and patriotic citizen on alert. We will no longer condone the antics of inconsequential characters like Mr. Julius Abure,” Ajaero said.

He added that the NLC and its allies would not stand by while the rule of law is undermined and urged all genuine members of the Labour Party to prepare to “peacefully repossess all offices of Labour Party nationwide.”

According to the statement, the NLC Political Commission and concerned stakeholders will soon issue directives on how this will be carried out. They also called on security agencies, especially the Nigeria Police and the DSS, to uphold their constitutional responsibilities and support the enforcement of the Supreme Court’s judgment.

The statement also urged the Independent National Electoral Commission (INEC) to fully comply with the court’s ruling by removing all traces of Mr. Abure and his team from its records.

To resolve the current leadership crisis in the Labour Party, the NLC said the remaining institutional members of the party’s National Executive Committee (NEC) are expected to appoint an interim leadership and organize a Special National Convention, as prescribed by the party’s constitution.

“A word is enough for the wise!” Ajaero added.

Continue Reading

Trending

Copyright © 2024 Naija Blitz News