The management and investors of Guinness Nigeria Plc are currently not smiling and that is connected to some factors that have eaten deep into the profit of the company. This was disclosed by the Managing Director of the firm, Baker Magunda in Lagos.
A far as the Guinness boss is concerned, Nigeria’s business environment has not been favourable for his company and provoking to the ease of doing business in the country.
Listing issues that have eaten deep into the company’s profit, Magunda outlined port congestion, tax reforms and decline in alcohol pricing. According to him, they have been affecting the operations of Guinness Nigeria and that the company has been burning cash to transport its products across the nation.
He added that the company is also struggling with government policies like the increased excise duties on beer and stouts, which was rose to N0.30 kobo per centilitre (Cl) in 2018 and N0.35 kobo per Cl each in 2019 and 2020.
Also, President Muhammadu Buhari-led administration had increased VAT rate from 5% to 7.5%, as well as implementing other tax reforms that have caused inflation pressure.
Governments excuse for hike in alcohol tax: The upward review of the excise duty rates for alcoholic beverages and tobacco was not targeted at local manufacturers, according to former Finance Minister, Kemi Adeosun, but aimed at achieving a dual benefit of raising the government’s fiscal revenues and reducing the health hazards associated with tobacco consumption and alcohol abuse.
But as the government increases its revenue and reduces abuse of alcohol consumption, the return on investment of alcoholic companies is being depleted. It is affecting consumers’ purchasing power, which in turn affects the bottom-line of the alcoholic beverage companies.
“The profit margin has reduced significantly. The overall pricing on alcohol has declined over the last four years. The inflationary trend has moved from 11% to 12%. There has been an increase in tariff. There is congestion at the ports, it costs the company over N700,000 to transport a container from the Apapa port to our factory at Ogba in Ikeja area of Lagos,” he added.
While investors and analysts await its full-year 2019 financial scorecard, Nairametircs had reported in October 2019 that the three-month period ended September 31, 2019, Guinness Nigeria’s gross profit was N7.9 billion, a significant drop compared to the N9.1 billion the company recorded during the corresponding period in September 2018. Meanwhile, its revenue for the 2019 period dropped by 4.2% to N26.8 billion, from N28 billion in the three-month period ended in September 2018.
Will Guinness navigate challenges? This is a tough call considering the fact that the company had been reporting a drop in profit and revenue even before the new tax reform took effect in February 2020. Aside from the tax reforms, the Lekki Port is still under construction, with no end in sight.
But Guinness Nigeria is looking to introduce new products into the market in order to stay competitive and remain relevant, as it is currently the third-largest market shareholder (22.1%) in the industry, which has International Breweries and Nigerian Breweries.
“We are not relenting, we will continue to be strategic in our thinking concerning our product line. There is the possibility that we might add new products to our product line. The spirit is the future, we might invest in spirits too. It is easier and cost less to distribute, it is one-way distribution, that is the future,” Magunda said.
(READ MORE: Nigerian Breweries goes to the retail lab)
Market rivals taking the hit too: The harsh business environment in Nigeria has been unfriendly to the bottom-line of companies operating in the alcoholic market, with companies like Nigerian Breweries spending N77.6 billion last year on advertising and marketing to maintain its 55.5% market lead. But despite the big-budget for media ads, the company recorded a profit after tax of N16 billion in 2019, compared to the N43 billion it earned in 2013 while incurring an external debt of N55 billion in 2019, a sharp increase from the N9 billion in 2013.
The story was even worse for International Breweries – the second-largest market shareholder (22.4%), which incurred more than N6 billion in advertising costs at Q4 2019, only to record revenue drop and a loss after tax of N9.1 billion in Q4 2019. The total revenue for the 3-month period ended December 31 stood a little bit above N35 billion, indicating a 5.8 per cent decrease when compared to N37.3 billion that was recorded in Q4 2018.
FG denies report on reintroduction of Covid-19 restrictions, clarifies position
The FG has denied media reports that it has reintroduced new Covid-19 restrictions as part of measures to curb the spread of the new India variant into the country.
The Federal Government has denied media reports that it has reintroduced new Covid-19 restrictions as part of measures to curb the spread of the new India variant into the country.
The government explained that it was only maintaining the curfew under phase 4 of the phased restriction of movement adding that it never relaxed the curfew imposed earlier under phase 3 of the eased lockdown.
This clarification was made by the Secretary to the Government of the Federation (SGF) and chairman of the Presidential Steering Committee, (PSC) on Covid-19, Mr Boss Mustapha, on Monday, saying that it was erroneously reported.
Mustapha said the announcement by the National Incident Manager, Dr Mukhtar Mohammed, during the PSC press briefing was taken out of context because the federal government did not relax the curfew imposed earlier under Phase 3 of the eased lockdown.
What the SGF is saying
Mustapha said, “Under the Fourth Phase of restriction of movement, night clubs, gyms and others will remain closed till further notice; while all citizens will also ensure that mass gatherings outside work settings do not exceed a maximum of 50 people in an enclosed space.
These restrictions have been in existence under the Third Phase but are being maintained under Phase Four of the phased restriction of movement.’’
He further said because people had been violating the safety protocols, they had forgotten that the protocols were never relaxed in the first place.
The SGF said, “Therefore, the PSC hereby reiterates that there is no newly introduced lockdown. There is no need for the panic that followed the announcement of the Fourth Phase of the phased restriction of movement.
We will continue to appeal to members of the public to comply with these restrictions because they are necessary safety measures against contracting the dreaded coronavirus, which is still ravaging human populations across the world.’’
Also, the Minister of Information and Culture, Alhaji Lai Mohammed, at a meeting with Online Publishers on Tuesday, in Lagos, denied reports on the introduction or even reintroduction of new restrictions on Covid-19.
Alhaji Lai Mohammed said there were no new restrictions, adding that the PSC on Covid-19 only reiterated existing regulations to control the spread of the disease. He said the only thing that was newly introduced was that anyone, including Nigerians travelling from Brazil, Turkey or India, must go through compulsory quarantine.
In case you missed it
It can be recalled that there were media reports that the Federal Government had reintroduced Covid-19 restrictions across all 36 states and the Federal Capital Territory (FCT) following the disturbing resurgence of the coronavirus pandemic with the new India variant.
President Muhammadu Buhari had approved the transition of the Presidential Task Force (PTF) on Covid-19 to PSC on Covid-19, with effect from April 1, 2021, with a modified mandate to reflect the non-emergent status of Covid-19 as a potentially long-term pandemic.
Inflationary concerns may lead to higher rate; Why 3 CBN MPC members want rates hiked
Despite the slight push back, the MPC decided to hold the rates, owing to the supply factor and the weak economic recovery of Nigeria.
Three members of the CBN’s Monetary Policy Committee proposed a rate hike citing several factors including Nigeria’s galloping inflation rate. Their decisions contradict those held by other members of the committee who voted for a continuation of the current monetary policy rate of 11.5%.
This was contained in the personal statement of members of the Monetary Policy Committee (MPC) in the meeting held on the 22nd and 23rd of March 2021. The decision to hold the rate steady was not unanimous as three out of the nine members voted to increase rates. These disconnects from the majority took their stand as a result of inflationary concern facing the Nigerian economy.
According to the Central Bank of Nigeria Communiqué No. 135 Of The Monetary Policy Committee Meeting, the members who were in support of hiking rates are namely; OBADAN, MIKE IDIAHI; SHONUBI, FOLASHODUN A.; and ADENIKINJU, ADEOLA FESTUS. The prime reason was the risk of high inflation on the economy.
Despite the slight push back, the MPC decided to hold the rates, owing to the supply factor and the weak economic recovery of Nigeria. The CBN governor Godwin I. Emefiele and five others were in support of maintaining rate despite unstable inflation postulating that supply factor is fundamental to healthy recovery especially as a result of the pandemic.
Emefiele said: “Supply constraints remain the key driver of both the inflationary pressure and the weak growth that we observe today. The weak GDP recovery provides an argument for further policy ease to support growth, but rising inflationary expectations justify a tightening. My inclination today is for a more balanced and cautious approach to monetary impulses.”
Even though Emefiele admitted that inflation rate could rise in the near term, he feared that an adjustment of the MPR could worsen Nigeria’s “conditions” especially with the tepid recovery we are still experiencing.
“I reiterate the imperatives of targeted lending to productive sectors to sustain growth without undermining our core objective of price stability. Based on the near-term inflation expectations and growth outlook, my position is to maintain the current stance of monetary policy and intensify our interventions. An adjustment today could in my view, destabilize the fragile recovery and worsen domestic conditions.”
However, some members who did not share the view and speculation about higher inflation may affirm this stand OBADAN, MIKE IDIAHI postulated that the CBN should put more pressure on deposit money banks to comply with the LDR scheme, according to him.
OBADAN stated that, “We are faced with the dilemma of low and fragile growth that needs to be reversed, accelerating inflation also needs to be tamed because it is Classified as Confidential and has a negative impact on people’s welfare and macroeconomic stability which is required for enhanced investment and production. Orthodox policy instruments available to the Bank are not capable of achieving the desired goals of strong growth and inflation control simultaneously without sacrificing one for the other. Stability needs to be brought to bear on the policy-induced drivers of the current inflation acceleration, while the MPR can be raised marginally with three objectives in mind: to signal the sensitivity of the Bank to address any possible monetary influence on inflation.”
A skeptical and more hawkish Obadan also suggested that the recent inflation rate was also due to monetary policy reasons such as increased lending due to CBN’s LDR Policy, depreciation of the naira and a lower interest rate environment which drives people into assets that provide a hedge against the naira. He also suggested that more efforts should be geared towards attracting foreign portfolio inflows.
“The factor of monetary influence on inflation cannot be ruled out completely. It interacts with other factors to drive inflation, perhaps, in a limited role. Against the backdrop of the Loan-to Deposit Ratio (LDR) policy, I do not expect the MPR adjustment to adversely affect the volume of lending significantly. To this end, we should put more pressure on the deposit money banks to comply with the LDR policy. Marginal upward adjustment of the MPR can also signal the desire of the Bank to tackle the phenomenon of negative real interest rate. Finally, in the short term, it could be a signal to foreign private investors while we implement measures to ensure stable sources of external reserves accretion in the medium term. Yes, foreign portfolio investment flows are indeed hot monies that tend to be very volatile. However, under conditions of improving growth, such flows could play a stabilising role in the economy. So, my vote is: raise MPR by 50 basis points and leave the other parameters as they are.”
SHONUBI, FOLASHODUN A., on the other hand, emphasized inaction was not an option considering how weak and fragile the economy currently is.
“Clearly, not doing anything will portray the Bank as abandoning its mandate of price stability. In as much as growth remains weak and fragile, we cannot afford to pull the brake to avert a more damaging reversal of the trend in output growth. Notwithstanding that the present inflationary pressure is largely attributed to non-monetary factors, its persistence, and reversal of the moderation in month-on-month growth stresses the need for the Bank to take immediate action. Whereas it may appear unfeasible to deploy the conventional monetary policy to pursue growth and tame inflation simultaneously, the Bank cannot abandon either of the objectives at this time.”
He also called for the continued intervention in key sectors of the economy postulating that this will boost economic growth.
“I believe the Bank’s interventions through the aggressive provision of credit should continue as a complement to the ongoing effort by the fiscal authority to boost economic activities. As the Government acts more decisively to discourage bad behaviour and restore orderliness, we must collectively work to overcome the insecurity challenges. At the same time, we must begin to tighten to deal with the subtle monetary component of inflationary pressure and curb spiraling inflation, without suffocating economic growth.”
Adenikinju, the last of the trio emphasized on the need for the CBN to focus on addressing higher inflationary environment. He also explained that addressing inflation will signal to economic agents that the central bank is keen on stabilizing prices thus curbing the demand for forex.
He stated that the persistently high inflation rate is cause for concern and that the CBN should begin refocusing its efforts to counter it, signaling to the wider economy that the CBN’s top priority would help to minimize foreign exchange market excesses, reduce liquidity-induced inflationary pressures on the economy, and protect fixed-income earners.
“The rising global commodity prices, plus the depreciating exchange rates and relatively high costs of shipping and clearing of goods at the Nigerian ports have all contributed to high imported inflation and reduced the extent to which imports could have mitigated the impacts of high domestic food prices in the short term. However, the weak economic growth, rising unemployment and poverty also mean that we cannot aggressively pursue strict price stability at a time we are slowly crawling out of recession. I see the CBN intervention credit as complementary and not a substitution to credit from the deposit money banks. Also given the focus of capital expenditure of the government this year, it then means that we can focus on growth and tackle inflation at the same time. However, I believe the persistently high inflation rate is concerning enough for CBN to start shifting its focus to address it. Signaling to economic agents that price stability remains the focus of the CBN will also curb some of the excesses in the foreign exchange market and reduce the liquidity induced inflationary pressures on the economy and protect fixed income earners.”
Whilst the trio may not have gotten their wish, we believe the CBN might raise rates to cool off the galloping inflation rate. The CBN has gradually raised rates on its short-dated securities, a clear indication that it is worried about widening the negative real interest rate emanating from rising inflation.
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