BusinessDay

Retail policy seen as critical to Nigeria’s local production

The introduction of a retail policy in Africa’s biggest economy can be a game changer in strengthening the local value chain against external shocks like foreign exchange shortages.

This is relevant at a time when Nigeria is experiencing severe foreign exchange illiquidity, which has pushed up inflation to levels not seen in 17 years.

“Retail is the engine that makes agriculture prospers. So, if you are looking at a retail policy that does not factor in the value chain, it will not work,” Uchenna Uzo, consumer expert and faculty director at Lagos Business School, said.

He said for any serious policy development to work, the country needs to factor in the ease of logistics, linking farmers and people involved in agric production to the retail side of business.

“If implemented, it would ease rising costs, enable local production, make trade easily, open ways for partnerships and generate employment.”

Haresh Keswani, managing director at Spar Nigeria, said there is a need for a retail policy because retailers are the last mile to connect with consumers.

“The government is focusing on import substitution, local manufacturing, agriculture, etc. which is good, but without retail, none of these will succeed,” Keswani said.

The country’s wholesale and retail trade is the second biggest sector by output as it contributes roughly 15-16 percent to the Gross Domestic Product.

But the surge in prices as a result of the Ukraine-Russia crisis has added more pressure on cash-strapped consumers in the country.

According to the National Bureau of Statistics (NBS), headline inflation in the country accelerated for the ninth consecutive month to 21.09 percent in October 2022, the highest in 17 years from 20.77 percent in the previous month.

The scarcity of foreign exchange, a major contributing factor to the rising inflation rate, was one of the factors responsible for the slow growth in the trade sector and the decline in imports for the second quarter.

In Q2, the sector’s growth rate slowed to 4.51 percent in Q2, 17.98 percentage points lower than the rate recorded in the same period of last year at 22.49 percent, and 2.03 percentage points lower than in the preceding quarter at 6.54 percent, according to NBS.

“While the trade sector sustained its positive performance for the fifth consecutive quarter since Q1 2021, foreign exchange related crisis, global inflationary pressures, continued supply chain disruptions and high custom tariff impacted the sector’s performance,” said Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest Limited.

For imports, its total value fell by 7.9 percent to N5.4 trillion in Q2, marking the second quarterly decline, from N5.9 trillion in the previous quarter.

The foreign exchange scarcity, combined with the high inflation rate in the country, has reduced the demand for imported products, said Ayorinde Akinloye, an investor relations analyst at Seplat Energy Plc.

Chidi Akubuiro, managing director at TradeDepot, said the rising prices and the wider economic situation mean consumers’ spending power is reducing, and that means less money in the hands of retailers.

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In 2020, the Central Bank of Nigeria devalued the naira twice from 306/$ to 361/$ and 379/$, weakening the value of the naira against the dollar. This year, the country’s foreign exchange crisis has worsened as the naira has depreciated to a record low against the greenback in the parallel market.

As of October, the exchange rate of the naira to the US dollar was N440/$1 at the official market and N800/$1 at the parallel market.

BusinessDay had earlier reported that the depreciation of the naira has made manufacturers in the country increasingly shift towards local substitutes.

Uzoamaka Igweike, chief executive officer at Loom Chocolate, said that in 2021, her company produced and sold 22,000 bags of local chocolates, with a target of producing 70,800 bags of chocolate owing to the recent surge in demand.

“We are attributing our recent surge in demand to the fact that FX is difficult to come by, thus making things more expensive to import,” Igweike said.

Retailers are not left out of this emerging trend as they are increasingly switching to local products.

With the disruption of supply chains during the COVID-19 pandemic, inflationary pressures and naira depreciation, more supermarkets are likely to source products locally, a recent Euromonitor International said.

Industry experts say Africa’s most populous nation can learn from South Africa, whose National Retail Sector Strategy under its 2030 National Development Plan set up in 2012, makes the country a top local producer in the retail sector.

One of the major aims of the strategy is to ensure the retail sector procures goods and services aimed at stimulating local producers, especially small and expanding firms.

“Their modern retail is big and well developed because they have been able to put systems and operations in places like education and an enabling policy environment,” Uzo said.

Wambui Mbarire, chief executive officer of the Retail Trade Association of Kenya, said the lack of a retail policy makes it very difficult for the sector to be involved in decision-making conversations with the government.

“Having a retail policy will allow us to have a conversation directed either by the government or ourselves within the law to ensure that it’s a win-win situation for manufacturers, retailers and the government,” Mbarire said.