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Emefiele’s Unorthodox Policies Propel Manufacturers’ Earnings

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The unorthodox policies of Nigeria’s Central Bank (CBN) Governor Godwin Emefiele have propelled manufacturers’ earnings, but there are concerns that the industry is susceptible to foreign exchange crisis and inflationary pressures.

“We attribute the performance to increased credit to the sector (4.0 percent y/y) and continued CBN’s intervention in the sector, ” said analysts at CSL Stockbrokers Limited in a recent note.

Also, analysts are of the view that the industry is benefitting from the gradual reopening of the economy and rollout of vaccines that underpinned business and construction activities.

The NGX listed manufacturers that comprise drug makers, operators in the industrial goods sector, and consumer goods collectively grew net income by 27.22 percent to N458.2 billion as at September 2021 according to data compiled by MoneyCentral.

Their combined revenue followed the same growth trajectory as it was up 31.17 percent to N3.15 trillion in September 2021 from N2.39 trillion as of September 2020.

An upward movement in earnings adds impetus to shareholders’ confidence that companies have enough to pay dividends and the government will not be spooked that corporations are accumulating losses that could result in downsizing of the workforce.

The Nigerian economy sustained its expansionary trend in the third quarter of 2021, as the country’s Gross Domestic Product (GDP) grew by 4.03 percent y/y in real terms compared with 5.01 percent in the second quarter of (Q2) 2021, based on the recently released GDP report.

The manufacturing sector grew 4.29 percent, the highest growth rate since the first quarter (Q1) of 2015, according to data from the National Bureau of Statistics (NBS).

It is important to note that the loans to deposit ratio policy of the central bank has forced banks to turn on the tap of lending to the private sector.

The Banking sector credit to the private sector increased month-on-month (M-o-M) by N425.9 billion to N33.84 trillion as of September, up from the N33.4 trillion it was at the end of August 2021.

Dangote Cement, BUA Cement, and Lafarge Africa collectively grew net income by 43.53 percent to N384.55 billion as at September 2021, and the planned capital expenditure spending by the government is expected to accelerate the demand for cement.

Consumer goods firms saw combined revenues spike by 31.71 percent to N2.11 trillion in the period under review from N1.60 trillion the previous year.

However, cumulative net income dipped slightly by 2.01 percent to N63.78 billion as at September 2021, stoked by N13.01 billion huge losses by International Breweries.

Unilever and Guinness Nigeria posted net income of N1.08 billion and N4.04 billion from losses of N2.06 billion and N841.15 million respectively in the previous period.

Drug makers were beneficiaries of high demand for chemical and pharmaceutical products by the health sector to manage the Covid-19 health crises.

Fidson Healthcare, GlaxoSmithKline, and May and Baker saw their revenue increase by 37.15 percent to N3.32 billion in the period under review from N2.09 billion the previous year.

However, Nigerian manufacturers are lagging peers in developed countries who operate in a benign environment.

Nigerian companies are hobbled by infrastructure bottlenecks such as bad roads, supply chain debacle, and epileptic power supply.

Between 2019 to 2020, they spent about N143.29 billion on alternative power supply, according to the Manufacturers Association of Nigeria (MAN).

That is on top of a severe foreign exchange scarcity that compels firms to buy currencies at an exorbitant rate at the black market, and the small ones who do not have the cash are hindered from importing raw materials and equipment to meet production.

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