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Nigeria’s biggest listed firms, members of the NGX-30 index posted N1.71 trillion in cumulative profit, even as analyst warn that a profit recession looms.
Eight of the companies or 26.67 percent of the 30 most liquid and most capitalised firms in Africa’s largest economy reported losses and there are concerns that rising interest rates, stubborn inflation, and the Russian/Ukraine war could tip more of them into the red.
“As rates rise, corporates would likely slow down on borrowing and thus moderate capital spending,” said Rasaq Abiola, a market analyst.
“Banks would also have less appetite to lend. Even so monetary policy transmission mechanism is relatively weak, rising interest rate environment would slightly choke business spending with attendant drag on economic growth….perhaps a recipe for recession as it may aggravate weak house demand occasioned by inflationary pressures and perennially low income levels,” said Abiola.
Analysts and investors who are worried about the profit outlook of corporate Nigeria say rising inflation that balloons operating expenses in the face of rising diesel prices could force managers to embark on cost control measures by way of job cuts , a double whammy for a country that houses 133 million poor people.
Nigeria’s gross domestic product (GDP) grew by 2.25 percent year-on-year in Q3 2022, down from 3.54 percent in Q2, according to latest data from the National Bureau of Statistics (NBS).
According to the NBS, the slow growth is attributable to the base effects of the recession and the challenging economic conditions that have impeded productive activities.
The majority of Nigeria’s biggest firms are still benefiting from hike in the price of key products to compensate for rising input cost, a rally in crude oil price, and a high yield environment as the combined profit of NGXASI 30 firms jumped by 11.34 percent to N1.74 trillion as at September 2022, according to data gathered by MoneyCentral.
Consumer goods firms on the index saw combined profit jump 44.32 percent to N88.41 billion as at September 2022. However, Unilever and International Breweries posted net losses.
The most capitalised and liquid banks saw combined net income increase by N861.53 billion as their higher interest is a boon for them.
MTN Nigeria Plc and Airtel Africa, the largest Telco firms in Nigeria, collectively grew net income by 21.94 percent to N274.77 billion as at September 2022 as mobile money networks are expected to support future revenue.
But the three dominant cement makers saw net income dip by 20.66 percent to N270.65 billion as at September 2022. Lafarge Africa buck the tread as it recorded an uptick at the bottom line.
Seplat Energies Plc, the largest indigenous oil and gas firm in the country, saw net income surge by 143.65 percent to N33.85 billion as at September 2022. The rally in crude oil price on the back of the Russia and Ukraine war has underpinned the share price of the oil major.
Higher borrowing costs brought on by a hawkish stance of a central bank who wants to avoid a deeper inflation trap means firms will be paying more interest on loans, which in turn erodes profitability, and puts more pressure on the ones that have not generated enough earnings.,
The Nigerian apex bank has raised the country’s monetary policy rate to 16.5 percent, up from 15.5 percent.
Nigeria’s inflation rate accelerated to a new 17-year high of 21.09% in October 2022, marking a 0.32% points increase from 20.77% recorded in September.
The Nigeria 10 year government bond has a 14.489% yield, and that compares with 4.17 percent on October 4, 2020, according to data from World Government Bonds.
Stakeholders say the incessant rate hike on top of a challenging environment will force factories to halt operations.
“Our own economy cannot stand this kind of rate hikes, where you have unemployment and inflation. Manufacturers are not able to cope with current interest rates because of the cost of production,” said Gabriel Idahosa, Deputy-President of the Lagos Chamber of Commerce and Industry.
“Manufacturers are not able to cope with current interest rates because of the cost of production. Diesel alone is sending many of them out of business. If you now add a high-interest rate, it’s not good for businesses that are already suffering from those other issues of inflation and power supply,” adds Idahosa.