The retail sector in Nigeria was once a formidable consumer market due to a fast-growing middle class, rising consumer income and urbanisation which made the country an attractive retail investment destination for local and foreign investors.
Between 2008 and 2020, there was a projected $ 40 billion growth opportunity in food and consumer goods in Nigeria, the highest of any African nation, according to a 2013 article by Mckinsey & Company.
However, this potential has not been realised as the sector has been challenged by recessions in 2016 and 2020, macroeconomic volatility, naira depreciation, weak purchasing power and shrinking household incomes.
To give a clear understanding, here are the main themes that show the retail sector is worse than what it was five years ago.
Weaker consumer income and purchasing power
When the Nigerian economy entered recession in 2016, the loss of jobs led to the shrinking of consumers’ wallets.
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According to data from Trading Economics sourced from the World Bank, the country’s Gross Domestic Product (GDP) per capita income declined by 6.9 to $2,386.9 in 2019 from $2,563.1 in 2015.
Also, data from the International Monetary Fund (IMF) on capita income shows that it dropped by 25.8 percent to $2,049 in 2018 from $2,763 in 2015. On average, 4 out of 10 individuals in Nigeria have real per capita expenditures below N137,430 per year, data from the National Bureau of Statistics (NBS) shows. This translates to over 82.9 million Nigerians who are considered poor by national standards.
The weak purchasing power and income made consumers opt for cheaper alternative goods as against premium products, which affected the revenue and margin performance of some listed Fast Moving Consumer Goods (FMCG) companies.
Lower retail sales
The lower sales that the retail industry has been experiencing since 2015 is evidence of the shrinking middle class.
The persistent low income and demand moved the country’s ranking seven places down to 30th position out of 30 countries in 2019 from 23rd position in 2016, in a Global Retail Development Index. In terms of total sales, it dropped to $105 billion in 2019 from $109 billion in 2017, $125 billion in 2016 and $135 billion in 2015.
Between 2016 and 2020, foreign retailers have left or announced their exit from the country, citing a tough business environment. In 2016, Truworths closed its Nigerian stores and in 2020, Mr Price and Shoprite announced plans to leave.
Foreign Exchange rate depreciation
Nigeria’s official exchange rate weakened significantly by 93.1 percent from N196.5 as at December 31, 2015, to N379.5 to a dollar on December 31, 2020, due to decline in oil prices and foreign investor apathy.
Typically, the currency exchange rate is one of the most important determinants of a country’s relative level of economic health as it plays a vital role in a country’s level of trade. A higher exchange rate can be expected to worsen a country’s balance of trade, while a lower exchange rate can improve it.
Many businesses and manufacturers that rely heavily on the dollar have been struggling financially. Traders selling imported goods have complained that the current foreign exchange rates made products expensive for consumers, with many of them still selling the old stock and unable to procure new ones.
Higher food prices
Prices of food items across the country have skyrocketed in the last five years.
According to the NBS, the average price of one kilogram (kg) of tomato increased by 33.2 percent to N316.2 in November 2020 from 237.4 in January 2016, while the price of one kg of yam tuber rose by 111.6 percent to N236.2 in November 2020 from the N111.6 in January 2016.
Similarly, in January 2016, one could purchase one unit of frozen chicken at an average price of N1, 116.7 but in 2020 it increased to N1, 936.9, representing a 73 percent increase.
The average prices of local rice and imported rice also increased by 165.8 percent and 163.4 percent respectively. Likewise, a bag of white garri rose by 104.6 percent.
Minimum wage
The current minimum wage for federal workers in Nigeria is N30, 000; up by 66.7 percent from N18, 000 in 2011. The current wage is equivalent to $79.1, whereas the old minimum wage of N18,000 as at 2015 was equivalent to $91.6.
One would expect the increase will translate to improvement in standard and cost of living, but it is not so as Nigerians are worse off now. Battling with higher food prices, a significant portion of their income, Nigeria is one of the worst countries for minimum wage earners to live in, noted a 2020 report by e-commerce firm, Picodi.
