Nigeria’s prolonged foreign exchange squeeze is forcing its biggest beer-maker to source raw materials at phenomenally high costs, Nigerian Breweries CEO Hans Essaadi told journalists in Lagos Wednesday.
Cost of sales spiked by 21.8 per cent or N60.4 billion in 2022, driving margin low and hurting gross profit, as the company now deploys tough measures to keep operations going,
“We’ve been faced and we are not going to stop being faced with a very significant storm,” Mr Essaadi said on Wednesday at a media briefing preceding its annual general meeting.
He remarked that Nigeria’s foreign exchange crisis in 2022 caused a shortage of dollars and euros for a business where “roughly 50 per cent of our input costs is imported.”
The condition reflects the ordeal of many manufacturers in Africa’s largest economy who turn to the parallel market, where the dollar sold for N740.6 at 11:05 WAT, according to @naira_rates, compared to N462.5 on the official market because the latter did not have enough to meet demand.
This month, the World Bank stated in its publication Africa Pulse the naira shed 10.2 per cent against the dollar in 2022.
But that could be way higher considering that the exchange rate used by such organisations in their reviews belongs to the autonomous forex market, a window closely controlled by the government, unlike the parallel market rate, which is driven by the forces of demand and supply and is more widely used.
The dilemma has sharply shot the brewer’s outstanding payable for business-critical imports upward, with overdue debt to Ibecor, its overseas buying agent, now as high as €110 million.
To settle the debt, Nigerian Breweries is looking unto Heineken NV, its parent company, to convert the credit to an intercompany loan, a lifeline the consumer goods giant hopes to get around May.
Heineken majority-owns the company, holding about 54 per cent of the issued shares. According to a presentation slide, that urgency needs to be quickly addressed to avert a partial or total shutdown of operations.
Meanwhile, the company is partnering with New York-based Africa-focused renewable energy developer CrossBoundary Energy for two solar power projects, eight and a half times the size of a football field, said Martin Kochl, the supply chain director.
“CrossBoundary Energy will fully finance the development and construction of the Ibadan and Ama renewable energy facilities, and will operate both facilities as part of a 15-year solar services agreement with NB,” the company stated on its website.
The sustainability move is targeting 10-gigawatt hours of electricity for both plants.
Through the solar and battery storage hybrid system, Nigerian Breweries expects to pare down carbon emissions by 100,000 tonnes as long as the plants exist in a push to dilute its energy mix further and boost its climate credentials.
But the energy ambition is much larger with a power purchase pact with Konexa that will fully convert the energy source for operations at the two breweries in Kaduna to hydropower already in place.
That is being extended to its distribution chain where a good number of trucks are set for conversion to gas from diesel, whose price jumped by almost threefold in 2022 alone.
The brewer, which grew property, plant and equipment by about 40 per cent or N101.8 billion last year, committed a huge investment to the extension of Ama plant, the biggest of its nine factories.
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