Nigeria’s Biggest Manufacturers Report Major Losses Due to Rising Interest Rates and Naira Devaluation

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Tax payments from Nigerian manufacturers have dropped to their lowest in three years, largely due to a challenging operating environment that has severely impacted their financial performance. According to the latest Company Income Tax (CIT) report by the National Bureau of Statistics, tax revenue from local and foreign manufacturing firms fell by 70.4% to ₦43.2 billion in Q1 2024, compared to ₦145.1 billion in the same period last year. Year-on-year, it declined by 31.4% from ₦62.9 billion.

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Several of Nigeria’s largest manufacturers incurred significant losses over the past year as borrowing costs soared due to rising interest rates and the further devaluation of the naira. Abiodun Kayode-Alli, a tax senior manager at PwC, noted that the high cost of production has made it difficult for manufacturers, affecting their tax contributions.

Kayode-Alli also mentioned that tax collections in the first quarter are typically lower because most companies have until June 30 to complete filings and payments. CIT, or corporate tax, varies by company size: 0% for companies with a gross turnover of ₦25 million or less, 20% for those between ₦25 million and ₦100 million, and 30% for companies with turnovers above ₦100 million.

The NBS report revealed that manufacturing, which typically contributes the most tax revenue, recorded the lowest growth rate among 21 sectors. This decline significantly impacted the overall CIT, which fell by 12.9% to ₦984.61 billion in Q1 from ₦1.13 trillion in the previous quarter. The Federal Inland Revenue Service reported generating ₦3.94 trillion in tax revenue in Q1, missing its target of ₦4.8 trillion.

Muda Yusuf, chief officer of the Centre for the Promotion of Private Enterprise (CPPE), highlighted that major manufacturers, particularly multinationals, have faced severe losses due to foreign exchange reforms and the unfavorable economic climate. Many of these companies, which contribute significantly to tax revenue, have struggled with rising finance costs from FX losses and higher interest rates.

Seven out of 13 listed consumer goods firms posted a combined loss of ₦388.6 billion in Q1. Firms such as International Breweries, Cadbury Nigeria, and Nigerian Breweries faced significant losses, while others like BUA Cement and Lafarge Africa saw declines in earnings. Only BUA Foods, Unilever Nigeria, and Dangote Cement posted profit increases, with a combined profit of ₦171.9 billion, up from ₦152.6 billion.

The Central Bank of Nigeria raised its monetary policy rate for the third consecutive time in May by 150 basis points to 26.25%, totaling a 750 basis points increase since February, in an effort to combat inflation and defend the naira. The foreign exchange regime liberalization in June resulted in a nearly 30% devaluation of the naira.

The official exchange rate increased from ₦463.38/$ in June 2023 to ₦1,473.7/$ as of June 2024, while the parallel market rate jumped to ₦1,500/$ from ₦762/$. This harsh business environment has driven more multinationals out of Nigeria, with six exiting in the past 10 months, including Kimberley-Clark and Procter & Gamble.

Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, warned that many companies are struggling to survive, with about 10 million businesses having closed shop due to the inability to plan and profit amidst these economic challenges.

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