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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.”
News
Just in: Tinubu’s son Seyi, Tops Controversial List As Lagos Guber Race Ignites Political Wahala
By Kayode Sanni-Arewa
The race to succeed Governor Babajide Sanwo-Olu in 2027 is gradually gaining momentum, with political stakeholders and groups across Lagos State already rooting for their preferred candidates.
Among those generating buzz is Femi Gbajabiamila, Chief of Staff to President Bola Ahmed Tinubu and former Speaker of the House of Representatives.
A growing number of party faithful and influential figures are backing him, with popular Nollywood actor and lawmaker, Desmond Elliot, reportedly leading a ‘silent’ push for Gbajabiamila to emerge as the APC flagbearer in the next gubernatorial election.
Supporters are said to be banking on his close ties to the President and long-standing political experience, which they believe make him a strong contender.
“Gbajabiamila is not just a seasoned legislator. Now as Chief of Staff to the President, he has added executive experience.
“That’s the kind of leadership Lagos needs,” said Famous Oloyede, an APC chieftain from Surulere.
However, some party members believe that by 2027, Gbajabiamila, who will be 64, may be too old to govern a complex and fast-moving state like Lagos.
“He should stay back in Abuja and continue supporting the President. Lagos needs someone younger; and besides, it’s time another administrative district takes the seat,” a senior party source revealed.
Lagos State is organised into five administrative districts, collectively called IBILE, namely Ikorodu, Badagry, Ikeja, Lagos Island, and Epe.
Notably, the last four governors of the state, Bola Tinubu, Babatunde Fashola, Akinwunmi Ambode and Babajide Sanwo-Olu, have all hailed from either Lagos Island or Epe.
Even Alhaji Lateef Jakande, the state’s first civilian governor, identified as a native of Lagos Island.
The clamour for 2027 is not one-sided. Stakeholders from Epe, a region that once produced former governor Akinwunmi Ambode, are also pressing for political rebalancing.
Following Ambode’s fallout with the APC leadership, many indigenes believe Epe has been marginalised in the state’s power structure.
As a result, attention has shifted to the current Minister of State for Health and Social Welfare, Dr Maruf Tunji Alausa, who hails from Epe. Many locals view him as a competent and loyal figure capable of restoring Epe’s influence in Lagos politics.
“Epe has been marginalised for years,” said Olugbede Adekalu, a strong APC member.
“Ambode was not allowed to complete his second term, unlike others before him. It’s time to correct that injustice,” he said.
Speaker of the Lagos State House of Assembly, Rt Hon Mudashiru Obasa, is also being quietly touted by political and religious circles.
A notable Islamic cleric recently expressed support for Obasa’s candidacy, citing his legislative experience and grassroots popularity.
While Obasa has yet to make a formal declaration, he recently made a subtle remark that has further fueled speculations.
Speaking during a public engagement, the Speaker said, “Also, becoming governor is secondary; it is something that I have not given serious consideration. Nevertheless, that does not mean I am too young or lack experience to run; whereas, those who have been before me are not better off.”
Observers believe Obasa’s statement was a calculated message to signal openness to the race without making an outright announcement.
Also making the rounds is the name of Seyi Tinubu, son of President Bola Tinubu.
While he has not publicly declared interest, speculations are rife, with several diaspora groups reportedly rooting for him.
This development has placed the party and the Governance Advisory Council (GAC), the highest decision-making body of the APC in Lagos, in a dilemma, especially as President Tinubu has remained silent despite the growing clamour for his son’s potential candidacy.
In addition to the growing field of aspirants, fresh agitations are emerging from Ikorodu, one of Lagos State’s largest administrative districts under the IBILE structure.
Despite the fact that the current Deputy Governor, Obafemi Hamzat, hails from Iga Egbe, a traditional compound within the Ikorodu Division, many stakeholders are insisting the district is yet to be adequately represented at the top.
According to party insiders, there is mounting support for either Rep Babajimi Benson or Hamzat himself to emerge as the next governor.
However, should neither of them clinch the ticket, strong lobbying is ongoing for Hon Abike Dabiri-Erewa, former House of Representatives member and current Chairman of the Nigerians in Diaspora Commission, to be considered for the position of deputy governor, especially if the governorship goes to another district.
“Ikorodu deserves a real shot at the governorship. It’s one of the most loyal and populated zones in Lagos, yet we’ve never truly had our turn,” said a party source.
While some argued that Ikorodu had a brief taste of power through Abiodun Ogunleye, who served as deputy governor during Tinubu’s administration, a party member countered that Ogunleye’s tenure, just 14 days between May 15 and May 29, 2007, was too short to be considered meaningful representation.
A party insider from Ogolonto, a community in Ikorodu, stated:
“Ogunleye’s 14-day tenure was purely symbolic. You can’t call that real representation. That’s not power-sharing, it was a token gesture. Ikorodu deserves more than a fleeting appointment.
“Serving just 14 days as deputy governor hardly qualifies as meaningful leadership. Ikorodu deserves more than a fleeting appointment.”
Reflecting growing calls for more equitable power rotation across Lagos, some party members have maintained that adjoining districts long overlooked deserve a turn in the executive seat.
“Power should shift to Badagry now. They’ve never produced either a governor since 1999,” another party member told DAILY POST.
Another name quietly gaining traction within APC circles is that of Senator Mukhail Adetokunbo (Tokunbo) Abiru, who currently represents Lagos East Senatorial District in the National Assembly.
This district encompasses the local government areas of Epe, Ibeju-Lekki, Ikorodu, Kosofe and Somolu
With many zones clamouring for recognition and no clear frontrunner emerging yet, one thing is clear: the contest for the soul of Lagos in 2027 will be one of the most keenly watched and hotly contested in the state’s recent political history.
By Kayode Sanni-Arewa
The Director-General of the Nigeria Safety and Investigation Bureau (NSIB), Alex Badeh, has confirmed that the United States National Transportation Safety Board (NTSB) shared the final report on the helicopter crash that claimed the lives of former Group Chief Executive Officer of Access Holdings Plc, Herbert Wigwe, his wife Doreen, their son Chizi, former NGX Group Chairman Abimbola Ogunbanjo, and two pilots.
Recall that the tragic crash occurred on February 9, 2024, when an Airbus EC130B4 helicopter operated by Orbic Air, LLC crashed near Halloran Springs, California.
The NTSB’s final report outlined the primary causes of the crash, identifying “pilot disorientation” and a violation of flight protocols as key contributors to the tragedy.
Specifically, the report pointed to the decision to proceed under visual flight rules in instrument meteorological conditions as a significant factor in the crash.
Badeh stated, “The NTSB shared the report directly with the NSIB as we are interested parties and in accordance with ICAO Annex 13 protocols.
“We do not necessarily comment on accident reports as they are not meant to apportion blame but to improve safety and prevent reoccurrence.”
When asked if the NSIB was satisfied with the findings in the NTSB report, Badeh emphasised that the NSIB does not engage in commenting on accident reports.
He clarified that the primary purpose of such reports is not to assign blame but to ensure that measures are put in place to enhance safety in the aviation sector.
“The report’s essence is to improve safety across the sector. The NSIB is not the head of aviation in Nigeria,” Badeh reiterated.
Badeh further confirmed that the family of the deceased had been in communication with the NTSB throughout the investigation process, from the time of the crash until the final report was released.
“The family of the deceased has been in contact with the NTSB at the time of the accident till the close of the investigation,” Badeh stated.
By Kayode Sanni-Arewa
In a daring continuation of Operation of Troops FANSAN YANMA Phase V, the troops have penetrated deep into terrorist strongholds across parts of Sokoto and Zamfara States, dismantling layers of insurgent infrastructure and recovering weapons.
The multi-day operation, which began with swift assaults on identified camps, saw troops advancing through highly hostile territory, including Gidan Madi, Tsamiya Village, Tudun Ruwa, Alela, and several forested areas notorious for harbouring terrorist cells.
Security sources told Akelicious that the troops encountered multiple ambushes laid by fighters of the Lakurawa terror faction, a splinter group known for its entrenched operations in the North West region.
Despite the resistance, the troops pressed forward, clearing key hideouts beyond Alela village, including the Areo general area, Damoria, Tumuna Village, and the densely wooded Goboro Forest.
“These locations have been long used by terrorists as logistics hubs and operational bases for launching attacks on civilian communities and security convoys,” a senior military source familiar with the operation said.
The military offensive did not come without cost. One soldier was wounded in action (WIA) during the series of engagements, while a vigilante supporting the operation paid the ultimate price. The wounded soldier was promptly evacuated to the 8 Division Military Hospital (8 DMSH) in Sokoto for treatment.
Troops also neutralised six terrorists affiliated with the Lakeurawa faction during the operation. Several others escaped with varying degrees of gunshot wounds, fleeing into the surrounding forest areas
Among the arms recovered from the cleared camps were various weapons, magazines, two handheld radios, and motorcycles which were some of the items believed to have been used for communications and mobility within the camps
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