Nestle Nigeria Plc, a unit of the world’s biggest food company, will struggle to maintain profit-margin growth in 2016 as the highest inflation in nearly 11 years and a lack of foreign currency stalls the economy in Africa’s most populous country.
“We haven’t seen the bottom” of the downturn, Chief Executive Officer Dharnesh Gordhon, 51, said in an interview in the commercial capital, Lagos, on Aug. 10. A shortage of dollars has made it difficult to import raw materials, he said.
Nestle Nigeria, about 64 percent owned by Vevey, Switzerland-based Nestle SA, is seeking to use its market-leading position in the country to ride out an economic contraction of 1.8 percent this year, Nigeria’s first recession in three decades.
The country, which vies with Angola as Africa’s biggest oil producer, has seen income plunge after the price of oil, which accounts for about 70 percent of government revenue, fell more than 50 percent over the past two years. Inflation accelerated to an annual rate of 16.5 percent in June.
The profit “margin is under pressure” as the company can’t pass all cost increases onto the consumer, Gordhon said.
While the Central Bank of Nigeria seeks to support the naira with currency controls, companies are finding dollar supply unpredictable, according to Gordhon. His company can go for as long as three weeks without being able to source dollars, he said.
“I wish there was a consistent pattern that you can plan with,” the CEO said.
Nestle Nigeria, which makes Maggi cube seasoning and Milo cocoa, is counting on an expanding middle class in the country and across Africa to increase and sustain demand for its packaged foods, the CEO said. It exports Maggi cubes to other African countries and to Europe, mainly to Nigerians living in those countries. While revenue grew 22 percent to 80.4 billion naira ($247 million) during the six months ending June 30 from the same period a year earlier, costs rose 28 percent, to 47.7 billion naira, Nestle Nigeria’s financial statement shows. Its Swiss parent company reports first-half earnings on Thursday.
“The Nigerian business for us is one of the best in Africa and it continues to grow,” Gordhon said. “We’ve had a compound annual growth of over 10 percent over the last five years. We’ve doubled the business in four years.”
With 92 percent of what the company sells produced locally, Nestle has an advantage over rivals that rely on imports, the CEO said. Rivals include Cadbury Nigeria Plc, Unilever Nigeria Plc and imported brands of packaged food.
“What I see is that there will be few players and this gives us the opportunity to solidify our market position,” Gordhon said. “The market is shrinking in terms of total size of category, but our share is increasing.”
Nigeria’s economic downturn is likely to bottom out by the end of this year, with a turnaround set to begin next year, according to Gordhon. The naira has weakened 38 percent against the dollar since the central bank in June dropped a 16-month peg against the U.S. currency. The naira strengthened 0.9 percent to 321.25 by 6:49 a.m. in Lagos on Wednesday.
“Nigeria is an extremely resilient economy,” he said. “People have gone through worse things in this country. What you need is constancy of economic policy or monetary policy. If you get those things, businesses can adjust. ”
Africa Day 2022: Energy Key to Ending African Food Crisis – ECP
Energy Capital & Power (ECP) says enhancing investment and development of the African energy sector will help drive the development of the continent.
ECP said this on Wednesday while marking the 2022 Africa Day tagged: The Year of Nutrition. It said “Energy is the backbone of every economy. Energy is a fundamental enabler and key driver of Africa’s development.
“Access to reliable, affordable, and sustainable energy goes beyond simply keeping the lights on, however, but drives industrialisation, agriculture, and infrastructure expansion while improving access to medical, education, and food services,” ECP added.
Africa’s leading investment platform for the energy sector stated that it remains fully focused on enhancing investment and development across the African energy sector, making a strong case for energy as a key driver of food resilience and climate change mitigation.
According to its official report made available to Investors King, ECP revealed that “Africa is facing a mounting food crisis which has only been worsened by the COVID-19 pandemic.
“Climate change, political and economic crises, and regional conflict and displacement have resulted in over 346 million people suffering from severe food insecurity while 452 million suffer from moderate food insecurity.
“While this insecurity continues to have significant consequences on the physical, mental and physiological development of the population, the burden of malnutrition transcends into the socioeconomic space, with the Cost of Hunger in Africa Study estimating that African countries are losing the equivalent of between 1.9 and 16.5 per cent of their gross domestic profit due to child under-nutrition. Accordingly, this year’s Africa Day is being celebrated under the theme, ‘Strengthening Resilience in Nutrition and Food Security on the African Continent,’ centered around the need to strengthen agro-food systems and health and social protection systems for the acceleration of human, social and economic capital development,” the statement added.
ECP said it believes that ongoing efforts to achieve net zero hunger can be strengthened through the expansion and improvement of energy systems across Africa. Currently, 65 per cent of Africa’s population relies on subsistence farming, and in order to tackle food insecurity, governments across the continent are looking at deploying large-scale modern agricultural systems, systems which require significant energy at every stage of the production stage.
“By scaling up investment in key energy industries, Africa has the opportunity to address two imminent crises: energy and food insecurity. The correlation between improved energy and food security is evident: by strengthening energy access and affordability, countries can strengthen agro-food systems continent wide, tackling food security and driving socioeconomic growth,” said Laila Bastati, Managing Director, ECP.
The African Development Bank Group’s Board of Directors had on Monday approved a $1.5bn Emergency Food Production Facility to help tackle the global food crisis sparked by the Russian-Ukraine conflict.
Africa’s only AAA-rated financial institution added that the funds will help 20 million African farmers produce an extra 38 million metric tons of food to address growing fears of starvation and food insecurity on the continent.
Refining Sector Accounts For 3% of Global Emission – ARDA
The African Refiners and Distributors Association (ARDA) has revealed that the refining sector only accounts for 3% of the global energy sector emission.
Oil and Refining Research Analyst, Maryro Mendez, stated this at the second Refining and Specifications Virtual Workshop organised by the ARDA and monitored by Investors King.
According to Mendez, “the refining sector accounts for only three percent of the global energy sector emissions. While refineries’ contribution to global energy sector emissions is low, the opportunities for reducing them are significant.
“Refineries globally have started thinking about measuring, monitoring and reducing carbon emissions and environmental sustainability has to be a priority for refiners and Africa is no exception.”
According to her, because fuel combustion accounts for 80% of refinery carbon emissions, fuel source and energy optimization would provide the greatest chance to minimize emissions.
“The challenge is not technical but is commercial with facilities requiring sufficient incentive and capital to invest without impacting on their competitive position”, she added.
The association further revealed that Nigeria and other African countries would need to minimize sulphur levels while noting that upgrading their existing refineries would require at least $15.7 billion.
Anibor Kragha, ARDA’s Executive Secretary stated that adopting a standardized specification will prevent the importation of fuels that do not match AFRI specifications into Africa.
“New process units required are to improve key fuel specifications, especially Naptha Hydrotreater (NHdT), Diesel Hydro-desulph. (DHDS), Benzene Extraction, Sulphur, and Hydrogen Plants.
“Another key focus area is for African countries, especially those sharing common fuel supply chains to develop an integrated policy covering both fuel quality and vehicle exhaust emissions.
“This is to achieve the ultimate objective of clean air in our African cities. Without this integrated and coordinated policy, the objective of clean air will not be realized whether by imports or local production,” he said.
The idea for an African refinery association was conceived in the late 1970s, and the first sub-Saharan African initiative – the Association of Refiners and Distributors of Oil Products (ARDIP) – was launched in September 1980, led by the SIR refinery in Cote D’Ivoire, with counterpart refineries in Senegal, Sierra Leone, Liberia, Ghana, and Gabon.
Mr Joel Dervain, the then Managing Director of SIR, re-activated the campaign for an association to promote technical and commercial best practices among African refiners and their stakeholders in 2006. The African Refiners Association (ARDA) was then created on March 23, 2006 in Cape Town, South Africa, with the help of his colleagues at SONARA, SAR, TOR, SOGARA, and NATREF.
African Energy Chamber to Host Energy Transition Forum at The 2022 Energy Week
African Energy Chamber (AEC) says it will host the Energy Transition Forum, in partnership with public and private sector organisations, government representatives, energy stakeholders and investors in October.
In a statement made available to Investors King AEC stated that “The Energy Transition Forum will address critical issues such as the lack of adequate funding, the diversification of the energy mix, workforce development, and regulatory reforms necessary to enable Africa to expand its energy sector to address energy security, affordability, access, and sustainability matters”.
“With some 600 million people across the continent living in energy poverty and over 900 million without access to clean cooking, Africa needs to exploit all of its vast natural resources in order to make energy poverty history by 2030. In this respect, stakeholders across the continent are opting for an integrated approach to developing energy resources whereby every resource is utilized in order to kickstart economic growth and electrification. With over 125.3 billion barrels of crude oil, 620 trillion cubic feet of gas, and nearly 16.4 billion short tons of coal, the continent is well-positioned to drive economic growth,” it added.
Executive Chairman of the AEC, NJ Ayuk, said: “With nearly 66 per cent of the world’s population living without electricity access based in Africa, the continent needs to ramp up the production of all its energy resources including gas, oil, wind and solar to ensure energy poverty is history by 2030. The AEC is honored to host the Energy Transition Forum at AEW 2022 where an African narrative of a just and inclusive energy transition that is fit for Africa will be developed. We will go from Cape to Cairo with a well-defined African message. Africans and the energy sector have a rare chance to define the narrative and we must.”
The Energy Transition Forum is bringing together investors, regulatory authorities and energy market players to discuss the role of gas in Africa’s energy future and energy transition. The challenges of limited investments in gas exploration, production, and infrastructure development in gas-rich countries such as Nigeria, Algeria, Egypt, Niger, and Mozambique will also be addressed.
According to the AEC, climate change continues to impact Africa, leading to an increasing number of African countries such as Nigeria, Namibia, Morocco, South Africa, Uganda, and Kenya introducing policy reforms and initiatives to scale up renewable energy penetration in Africa.
Investors King gathered that Nigeria has vowed to achieve climate neutrality by 2060 by increasing the share of natural gas and renewables in its energy mix while Namibia aims to make the development of hydrogen central to its energy policy. At the same time, South Africa has introduced its Hydrogen Society Roadmap to fast-forward the development of local content and hydrogen infrastructure whilst Morocco’s Law 13-09 and Egypt’s net metering scheme aims to expand distributed renewables development.
The chamber added that the AEW 2022, under the theme – “Exploring and Investing in Africa’s Energy Future while Driving an Enabling Environment” will feature high-level meetings and panel discussions where government ministers, investors, academia, and energy market stakeholders will discuss how Africa can attract funding to boost exploration, production and infrastructure development to ensure secure supply while remaining a climate champion.
The African Energy Week is scheduled to take place from 18th – 21st October 2022 in South Africa at Africa’s premier event for the oil and gas sector.
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