High poverty rate, rising inflation, and other unfavourable macroeconomic factors in Nigeria are hindering businesses from experiencing the usual boom during the festive season.
Service providers and product manufacturers always look forward to the fourth quarter of the year, particularly December, for increased demand and profitability but this has waned as unfavorable macroeconomic conditions constrain consumer’s purchasing power.
Nigeria has 133 million people who are experiencing multidimensional poverty in health, education, living standards as well as work and shocks, according to the National Bureau of Statistics (NBS).
The country’s inflation rate has quickened to a 17-year high of 21.09 percent in October, with the World Bank projecting that Nigeria’s inflation will push an additional 7 million into poverty by the end of 2022.
In 2020, Africa’s most populous nation recorded an all-time high unemployment rate of 33.3 percent. Although new figures are yet to be released, analysts have projected that it may have grown well above 40 percent.
The rising inflationary pressures also increased the cost of doing business, with salaries and wages for employees growing in the second quarter of 2022 at the slowest pace since Q3 2020.
According to the NBS, the salary growth fell to 3.93 percent in Q2 from 6.48 percent in the previous quarter.
Aishat Adepoju, who sells drinks on a large scale, told BusinessDay that sales have been slow compared to previous years as she is yet to experience the expected hike in demand, saying there is still a large volume of unsold goods in her stores.
“Usually, by now the demand for products will have doubled but that is not the case, and some of my customers that usually buy in really large quantities reduced their order,” she said.
Omolola Adio, who retails gift items and festive season hampers, said demand has been low. She recalled that as early as the first week in December 2021, she had a long stretch of orders for souvenirs and hampers.
“Things are also more expensive, which has increased the prices of products and services I offer but I am hopeful that if people do not order for Christmas, they will order for the new year,” she said.
Service providers in the aviation sector such as travel agents are also not left out of the decline in demand. To cut costs, Christmas travellers are bypassing local travel agents to book their return tickets using their dollar cards.
“A lot of people are still travelling back for Christmas but sadly, the tickets are not being issued by us. We are not selling tickets, yet flights are fully booked for Christmas. We are really losing out this period,” Susan Akporiaye, president of the National Association of Nigeria Travel Agencies, told BusinessDay.
Olawale Fadairo, a small-scale seasoning and spice manufacturer, said when compared to the previous year, demand has slowed, although people are still patronising his relatively new product.
“Some inputs have been very scarce and our production cost has increased, yet the demand has not been encouraging unlike before,” he said.
Manufacturers are battling low product demand amid rising production cost, which is already hurting the sector and the economy.
Data from the 2022 third-quarter GDP report revealed that the manufacturing sector contracted by 1.91 percent during this period, which is lower than the 3.0 percent recorded in the preceding quarter and the 4.29 percent achieved in the same period of 2021.
According to analysts, this performance was driven by various conditions including the impact of high production cost, FX shortage, unfriendly business environment and global crisis.
FX availability and accessibility has remained challenging for manufacturers. Currently, it costs N445 to get one dollar from the Central Bank of Nigeria (CBN), while it costs around N750 in the black market.
The unfavourable exchange rate has increased production cost significantly because no less than 40 percent of raw materials, machines and other inputs required for production are sourced using FX.
Global crises such as the COVID-19 pandemic and Russia-Ukraine war caused an abrupt stoppage in the supply of raw materials and machinery while local sourcing, which should serve as an alternative, is also struggling due to rising insecurity in crucial regions.
Beyondinf the issue of rising production cost, marketing and distribution expenses of these firms have surged significantly year-on-year and experts say that missing out on the seasonal boom will have an effect on their profitability and ability to plan ahead for the new year.
Some other entrepreneurs are, in a bid to increase sales, are running promos by slashing prices or giving gifts to incentivise customers and increase demand.
