spot_img
spot_img
24.1 C
Lagos
Sunday, June 26, 2022

Nigeria Companies Cut Spending Amid Surging Production Costs

Must read

Listen now

Nigeria’s largest companies are still stalling capital expenditure, with no incentives to invest in new plants in a country beset by foreign exchange crisis and deteriorating disposable income that cast a pall of future economic growth.

The most capitalized and liquid firms saw their acquisition of property plant and equipment (PPE) dip by 4.36 percent to N808.24 billion in December 2021 from N845.11 billion as at December 2020, according to data gathered by MoneyCentral.

Investors and market participants use investment in capital expenditure to gauge business sentiments because firms embark on such investment in anticipation of strong consumer demand and economic growth.

“During the coronavirus crisis there was less investment and businesses were not sure what disposable income would be like. A lot of them were not exploiting their capacity. So, why should they invest in new plants?” said an industry expert who did not want his name mentioned.

The acquisition of property plant and equipment spiked by listed Nigeria Companies spiked by 31.36 percent in 2019, a pre-pandemic period that signals companies were willing to embark on future expansion plans.

It is important to note that decline in capital spending is incongruous to the recent GDP report that indicated the economy was out of the woods on the back of relaxation of social distancing rules that underpinned business activities.

The Nigerian economy grew by 3.98 percent year on year (yoy) in the last quarter of 2021. Compared to 5.01 percent (yoy) in Q3-2021 and 0.11 percent (yoy) in Q4-2020, the performance of the economy in Q4-2021 represented a mixed stance, according to recent data by the National Bureau of Statistics (NBS).

The report also showed the manufacturing sector real GDP closed the year positive, rising by 3.35 percent y/y in 2021 from a contraction of 2.75 percent y/y in 2020.

Dangote Cement, BUA Cement, and Lafarge Africa saw collectively capital spending reduce by 30.41 percent to N241.75 billion in 2021 even as there has been acceleration in construction activities supported by benign season and reopening of the economy.

The largest consumer goods firms saw collective expenditure on capital items dip by 14.11 percent to N170.51 billion as at December 2021 from N198.53 billion the previous year.

The Manufacturers Association of Nigeria (MAN) has warned that the foreign exchange scarcity that hinders its members from importing plant and equipment to meet production could result in job loss as they are mulling shrinking workforce to stay afloat.

Checks by MoneyCentral show the exchange rate stood at N587/$1 and N785/£1 on the black market as against the N582/$1 last Friday.

The Director-General of MAN, Segun Ajayi-Kadir, said that Nigeria Companies especially manufacturers now rely on the parallel market for their foreign exchange.

Ajayi-Kadir said the forex scarcity and the high cost of diesel had greatly increased the cost of production, adding that employers may be forced to lay off some workers in order to cope with the new realities.

It is worrisome that the outlook for the economy remains bleak, and diesel oil scarcity combined with the ensuing red-hot inflation due to the Russian-Ukraine war means bellwether companies may scale back their expansion plans.

The Economist Intelligence Unit (EIU) in a recent report said it expects Nigeria’s economic growth to slow more than expected in 2022.

From the initial forecast of 3.30 percent in February, the EIU now expects GDP growth to decelerate to 3 percent in 2022 from 3.6 percent in 2021.

Headline inflation rose by 10bps to 15.70% year-on-year in February 2022, according to latest data from the NBS.

- Advertisement -spot_img

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

- Advertisement -spot_img

Latest article