• Friday, March 01, 2024
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Electronics product sales to hit 7-yr low on FX scarcity

electronics shop (1)

Retail volumes of electronic products in Nigeria are projected to hit the lowest level in seven years on the back of the rising cost of foreign exchange, according to a new report by a global market research provider.

The report by Euromonitor International shows that the volume of electronics in the formal market could fall for the fifth straight year to 19.8 million in 2023 from 20.3 million in 2022. Its value is, however, expected to increase by 25.6 percent to N1.57 trillion.

“The picture is expected to be bleak for consumer electronics in 2023, with overall volume sales expected to fall. A new government inherited a sluggish economy, record debt, and shrinking oil output, due to creaking infrastructure,” it said.

It said the government implemented some difficult decisions in order to stabilise the economy, including removing trading restrictions on the official currency market, adding that this has driven the naira to a record low.

“This significant currency devaluation is expected to negatively impact consumer electronics, as most products are imported. In addition, with inflation continuing to rise, this is putting even further pressure on consumer purchasing power,” the report added.

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Consumer electronics are largely imported into Nigeria, Africa’s biggest economy. They include computers, laptops, smartphones, TVs, virtual cameras, air conditioners, dishwashers, refrigerators, washing machines, dryers, and microwave ovens.

The Euromonitor report shows that portable consumer electronics, which contributed the largest share, would fall to 18.1 million from 18.6 million; in-home consumer electronics would reduce to 1.50 million from 1.53 million; in-car entertainment is projected to decline to 26,800 from 26,900; and computers and peripherals would rise to 186,000 from 185,200.

“The industry has been struggling on its ability to increase prices. And if you look at the absolute growth in terms of price multiplied by quality, it would look as if it is growing but when you look at the actual volumes, it is reducing because people are not buying,” Ayorinde Akinloye, an investor relations analyst at Seplat Energy Plc, said.

Before the Central Bank of Nigeria collapsed all segments of the FX market into the Investors & Exporters window in June, the country’s dollar liquidity crisis had worsened on the back of the Russia-Ukraine crisis, which started in February last year.

The naira depreciated from 416.52/$1 as of February 28, 2022, to 742/$1 on Tuesday at the official market. At the parallel market, popularly called the black market, the dollar was quoted at N930/$1, compared to N575/$1 on February 28, 2022.

According to a recent survey by the Manufacturers Association of Nigeria, manufacturing activities continue to suffer due to the persisting scarcity of forex and further depreciation of the naira.

“Only 14.7 percent of manufacturers enumerated claimed that the rate at which forex was sourced improved in Q2; 66 percent disagreed while 19.3 percent were not sure if forex sourcing had improved in the quarter under review,” the association said.

It added that the lingering forex scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilisation since the importation of non-locally produced critical input has become a nightmare.

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Apart from the FX reform, the removal of the petrol subsidy in May which tripled petrol price to N617 from N184 has increased the cost of living for Nigerians.

The country’s inflation rate rose to a near 18-year high of 24.08 percent in July from 22.41 percent in the previous month, according to the National Bureau of Statistics (NBS).

The World Bank said in June that inflation pushed an estimated four million more Nigerians into poverty in the first five months of this year.

Consumers are battered with pressures from their disposal income while producers are dealing with FX crises, said Gbolahan Ologunro, portfolio manager at FBNQuest,

“The high cost of living has negatively impacted consumers’ disposable incomes, making them to ration their incomes towards nondurable goods or basic necessities,” he said.

Analysts at Euromonitor said with consumer purchasing power taking a hit, consumers are looking to extend the life cycle of their electronics.

“This is particularly true for televisions. Consumers are also looking to economise by buying second-hand devices, particularly for mobile phones and also computers, to an extent,” they added.

According to the firm, one emerging trend that is boosting volume sales is the increasing availability of interest-free credit instruments such as ‘Buy Now Pay Later’.

“Examples include Easybuy and Carbon Zero. These interest-free credit offerings are enabling more consumers to be able to afford big-ticket items such as computers.”

Africa’s most populous nation relies heavily on imported electrical and electronic equipment from China, India, Germany, Turkey, and Sweden. Last year, the country’s imports of electrical and electronic equipment rose to $3.45 billion from $3.09 million in 2021, according to the International Trade Centre.

Growth in the electrical and electronics sector declined to 1.06 percent in the second quarter of 2023, from 1.80 percent in the same period of last year, data from the NBS show.

The purchasing power of people has dropped and the economy is not doing well, said Emmanuel Amaife, an official at Alaba International Association (Electronics Division). “What is happening to those that sell electronics in the big stores is also happening to us.”

A recent report by NielsenIQ, a global consumer intelligence company, noted that Nigerian consumers are prioritising future planning, physical wellness, saving for unforeseen circumstances and mental healthiness above every other need in the next 12 months.

“Rising price pressures impacted demand, with growth of both new orders and business activity softening as the second half of the year got underway,” it said.

Read also:Naira falls across FX markets on rising demand for dollars

Euromonitor projects that while performance is expected to be negative for consumer electronics this year, the outlook is more positive over the forecast period.

“The new government has implemented some unpopular but essential economic reforms, such as foreign exchange management, and it is hoped that these reforms will restore economic stability over the forecast period and will in turn lead to healthy volume growth in consumer electronics,” it said.

It said the strong performers would be wearables, True Wireless earbuds, and wireless speakers. “However, there will also be healthy volume growth for laptops.”

“Furthermore, increasing internet penetration and 5G connectivity with higher internet speed will also fuel growth, particularly for products such as smartphones and smart TVs. Lastly, continuing population growth should also support increased volume sales,” the firm added.