Home Business Banks halt lending to fund business operation in Northern East states

Banks halt lending to fund business operation in Northern East states

by Business News Report

bankMANUFACTURERS in the country are licking their wounds over streams of loses as a result of built up finished inventories of goods in their warehouses they can not sell. This is as a result of the insecurity in the Northern part of the country that has taken away part of their market. Many company chief executives who spoke to Vanguard said the North is important to their business as the region accounts for more than 30 per cent of the Nigerian market.
Though the manufacturers see the market as huge distribution of goods and services to this region is being hampered by security challenges in the affected states.
This has led to significant reduction in turnover, reduction in sales force/ sales outlets; layoff of production staff by companies operating from other parts of the country due to high unsold inventory. From multinationals to small and medium size firms, the story is the same.
Speaking on the issue PZ Cusssons Plc Chairman Professor Emmanuel Edozien, said its sales dropped by 1 per cent from N72.2 billion to N71.3 billion,. In a review of the company’s performance for financial year ended 2013, he attributed the drop in the company’s revenue to: “The social unrest in the Northern part of the country and the impact on the consumers’ spending power subsequent to the reduction of the fuel subsidy which exerted considerable pressure on the top line throughout the year.” According to him, however, profitability increased with profit before tax growing by 78 per cent from N4.3 billion to N7.7 billion off the back of reduced raw material prices and manufacturing and supply chain efficiencies.
“In addition, net profit after tax and minority interests increased by 102 percent from N2.4 billion to N 4.9 billion. “Though the top line results are not in line with our projections, the choice of investing in volume growth and improving the cost structure during the year, gives us the confidence that this will put our company on the right footing for profitable growth in the future.

Our Focus during the year was to drive shareholder value through management of the cost base, and driving economies of scale from our suppliers through our procurement division. We leveraged our investments in supply chain and manufacturing to improve margins while maintaining the quality of our products,” he said.
The marketing of our products in the north is being hampered,” said Martin Woolnough, the immediate past Managing Director of Nestle Nigeria Plc. Describing the state of insecurity in some part of northern Nigeria as “A stress on the economy, he said: “We can’t get our sales team up there. That’s likely to impact the middle to long term brand equity in the future. Nestle Nigeria’s first-quarter net income fell 3.4 per cent to N5.99 billion naira ($38 million) from a year earlier. Revenue climbed 7 per cent to N30.7 billion. Distribution, administration and other costs rose 5 percent from a year earlier to N17.5 billion because of an increase in marketing spend,” Woolnough said.
Woolnough, who noted that the company has about 140 sales staff in the country, said Nestle, the largest food company in Nigeria, temporarily withdrew about 10 of its sales staff from the three states for a week, the second time in four years it has evacuated employees since the insurgency began.
“People still need to eat food and cook their stews, so fortunately we are less affected in the north than other products would be,” said Woolnough, referring partly to the company’s food seasoning Maggi, which he said was a “very strong brand” in some areas affected by the fighting. Woolnough retired recently after five years as head of the Nigerian unit of Vevey, Switzerland-based Nestle SA (NESN.
He handed over to Dharnesh Gordhon, Nestle’s former sales director in southern Africa.
Nestle has invested 500 million Swiss francs ($524 million) over the past decade in Nigeria, building a second factory in Agbara, Ogun state which opened in 2011. The company also produces Milo chocolate malt and Golden Morn cereal.
Commenting on the impact of the state of insecurity in the North on his company, Keith Richards, Managing Director of Promasidor Nigeria Limited, said: “You know with the borders closed, a lot of formal and informal exports are not happening. People are not coming from Chad, Niger, Cameroon and Mali. So you see a downturn in demand. The North is important to us. A lot of our brands are doing very well here.
“Now consumption is plummeting. In 1st Quarter 2012, our milk sales volume declined by 14.3 per cent, powdered beverage sales by 3.7 per cent and tea by 9.1 per cent. But our seasoning products sales grew by 7.1 per cent. And I know all the businesses in the Fast Moving Consumer Goods FMCG, are affected too, especially with products like beer, soft drinks and tobacco.”
Procter & Gamble Nigeria Limited (P&G) which has an expansive distribution network in the North is affected by the shutting down of stores, stemming from the crisis.
But Manoj Kumar, P&G chief for West Africa, says the company is up to the task. “We have been here for 20 years. All sorts of crisis have come and gone. We are therefore not worried like other companies which have spent a few years operating in the country,” he said.
The Lagos Chamber of Commerce and Industry (LCCI) in its Business Environment Report, said that many firms in the country have lost 30 per cent of their sales because of insecurity in the North, which denied them access to the region. The report, which was prepared in the second quarter of the year, also said manufacturing firms sourcing raw materials from the North are now facing serious challenges, while projects funded by banks in the affected states are at risk.
According to the report, the hospitality industry in the affected states has been paralysed just as many investors, especially small and medium enterprises are relocating to other states.
“Many bank branches have been closed, while the working hours for others have been drastically reduced. Sales representatives of many companies have fled the affected states. Many projects under construction in the North have been abandoned while security budgets have been scaled up by many firms,” said LCCI. The survey also disclosed that expectations from the North which represent 30 per cent of total Nigerian market have shrunk considerably due to goods produced by these manufacturers are no longer sold out to the supposed buyers because of the flinch market volume.
LCCI furthermore noted that the scope of coverage for manufacturers in the northern part of the country is limited as investors could not set up factories in the North out of fear of being terrorized, bombed or shut down due to lack of low sales and that manufacturers who had their companies in the north and those who distributed to the north all had a loss of market share and revenue derivable from the North.
The survey also disclosed that marketing and distribution activities of many companies in the North have been brought to a standstill especially in the manufacturing sector, adding that most investors and workers had to flee the state(s) to avoid being killed by terrorists.
On the effects of insecurity in the banking sector, the survey stated that increased lending to Northern business was impossible by banks as the possibility of paying back the loans were not visible and saw it as a great risk to lend to an investor intending to invest in the north.

Related Posts

Leave a Comment