Manufacturers Struggle as Unsold Goods Pile Up Amid Rising Living Costs

Manufacturers in Nigeria’s fast-moving consumer goods (FMCG) sector are facing significant challenges as unsold goods continue to accumulate in warehouses. This troubling trend is attributed to the rising cost of living and declining purchasing power of citizens, leading to a sharp decline in output levels within the sector.

According to Financial Vanguard’s findings, the stock of unsold goods for FMCG manufacturers increased by 27% year-on-year (YoY) during the financial year ending December 31, 2023. The situation is expected to worsen, with a projected rise of over 30% in unsold goods in the first quarter of 2024.

This rise in unsold inventory is causing a steady decline in output levels. A report by the Central Bank of Nigeria (CBN) highlighted that capacity utilization in the food and beverage sector dropped from 61% in the corresponding period of 2022 to 49% in mid-2023, marking a 20 percentage point decline.

Nigerians have been grappling with inflationary pressures for the past eighteen months. The headline inflation rate surged to 28.82% in December 2023, up from 21.34% in December 2022. Food inflation also increased dramatically, rising to 33.93% from 23.75% over the same period. The trend has continued in 2024, with headline and food inflation reaching 33.69% and 40.53% respectively in April.

The combination of high inflation and naira devaluation has forced manufacturers to raise prices to cover increased input costs. However, this strategy has alienated many consumers, slowing down sales. Financial Vanguard’s research on 15 major FMCGs revealed an escalating price index, with unsold goods amounting to N104.45 billion despite reduced production quantities.

Notably, palm oil producers like Presco Plc and Okomu Oil Palm Plc have been significantly impacted. Presco recorded a 249.4% increase in unsold goods to N1.45 billion, while Okomu saw a 124% rise. Other affected companies include Dangote Sugar Refinery Plc and Flour Mills of Nigeria Plc, with unsold goods increasing by 92.9% to N9.76 billion and 74.1% to N30.75 billion respectively.

Industry experts and associations have weighed in on the situation. Sola Obadimu, Director General of the Nigerian Association of Chamber of Commerce, Industry, Mines, and Agriculture (NACCIMA), emphasized the need for stability in economic indices to improve the situation. Muda Yusuf, Director General of the Center for the Promotion of Public Enterprise (CCPE), highlighted the impact of high production costs and called for measures to stabilize the exchange rate and reduce energy costs.

Victor Chiazor, Head of Research at FSL Securities, noted that the rise in inventory could be due to companies’ inability to drive sales or deliberate strategies to manage cost volatility. He stressed that unsold goods weaken profitability and tie up capital, urging the government to address issues like FX volatility, rising energy costs, and poor infrastructure.

Until economic conditions stabilize, the FMCG sector is likely to continue struggling with high levels of unsold inventory and declining output levels.