Rising Prices loom as Businesses Depend More on Loans for Survival
The Nigeria market and 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.
This is 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.
