Nigeria consumer demand pick-up boosts corporate earnings

Shadrach Obiechine, a used spare-parts trader operating out of the Ladipo area of Lagos, has had a good year so far as his business has grown steadily. Obiechine, who works from Monday to Saturday, usually attends social engagements where food and alcohol are served on Sundays to unwind, after the long week.

“I attend my weekly club meetings for traders in my line, as well as monthly town hall meeting for Lagos residents from my village,” says Obiechine, sipping from a bottle of Star larger beer made by Nigerian Breweries in an open-air bar in the FESTAC district of Lagos.

“This month alone, I have attended two weddings, and a child dedication. People are spending money on entertaining themselves, even with all these negative headlines and political tension,” he says.

Nigerian companies will be hoping that spending by consumers such as Obiechine holds up for the rest of the year to help boost corporate bottom lines.

Corporate earnings released in May are up 8.19 percent, according to data from research and consultancy firm Financial Derivatives Company (FDC).

“Beer and malt sales are up well ahead of the election spending spree,” says Bismarck Rewane, an economist/CEO of FDC, in a June 4 presentation, noting “domestic airline load factors are higher in the golden quadruple of LOS-ABJ-PH-Enugu.”

The Nigerian Stock Exchange (NSE) has rallied to erase losses for the year, with gains in consumer sensitive stocks such as Ashaka Cement, Cadbury, Nigerian Breweries, and Forte Oil, which are up 28.68 percent, 38.7 percent, 4 percent and 155.7 percent year-to-date, respectively.

Stocks rose 0.7 percent on Friday with the All Share Index (ASI) market capitalisation rising to N13.71 trillion ($83bn), and year-to-date returns up 0.45 percent. A rallying equities market is positive for consumer spending as it creates a virtuous wealth effect cycle.

“Nigeria’s capital market has benefited from GDP rebasing and the consequent interest from global and international investors caused by the larger Nigeria weighting in the MSCI frontier market index,” says consultancy firm RTC advisory services in a note released June 9.

The rebased GDP showed Nigeria’s GDP per capita almost doubling to about $2,700.

First quarter 2014 revenues for Nigerian breweries, Lafarge, Nestle and Forte oil rose by 6.8 percent, 16 percent, 8.9 percent and 30.7 percent, respectively.

Consumers are getting a bigger bang for their naira as the Economist Intelligence Unit (EIU) expects food, foodstuff and beverage price index to fall by 1.4 percent in 2014, after falling by 7.4 percent in 2013, meaning that the naira will have to devalue by more than 8.8 percent to impact raw material costs, says Rewane.

The naira has pared losses versus the greenback to 2 percent this year and traded at N163.6 per dollar on Friday, after falling as low as N169 earlier in the year.

The inflation rate for April reached 7.9 percent, inside the central bank’s 6 percent to 9 percent target band.

“Despite the perception of heightened socio-economic risk of Nigerian by foreign and domestic investors alike, Nigeria’s economy has proven resilient, and has even encountered episodes of economic growth bursts during and after successful election years,” research firm CBO Capital notes in a June 2014 note.

The Nigerian economy will expand by 7.3 percent this year, up from 6.4 percent in 2013, according to estimates by the International Monetary Fund (IMF).

For consumers like Obiechine, having a good time out and spending money on entertaining himself is the least he can do to ease the daily hustle of a big city.

“Lagos is too stressful, so I just have to relax, with my friends whenever I can,” Obiechine says, saying “the World Cup is on too, so I will be drinking beer and enjoying the games.”

 

PATRICK ATUANYA