Companies operating in Nigeria have started evolving strategies to adapt to the sharp slowdown in consumer spending in 2015 that has affected sales, and rubbished growth models.
CEOs of these firms say the new strategies are designed to ride them through the current tough operating environment.
“We have gone from very high double digit growth in 2013 to very low single digit growth in the first quarter of 2015. This is problematic for me because several years ago I requested and got a major injection of business development resources from the global board,” said the regional Middle East and Africa (MEA) director of a consumer goods multinational.
“We are currently trailing heavily behind our revenue projection. This kind of environment is actually prompting us to rethink everything we do here.”
The company is now considering if it makes sense to start some manufacturing in Nigeria, which it could use to service other nearby markets.
The firm has also adopted new prices to reflect current realities, in order to keep and grow market share, according to the source who was speaking anonymously.
Oil prices will hover between $52 and $60 per barrel till year end and companies need to begin to position for next year, as 2015 is pretty much gone, said Bismarck Rewane, CEO of research fir4Financial Derivatives Company, in a presentation made at the Lagos Business School yesterday.
“Companies will have to review all key performance indicators (KPIs) made at the beginning of the year. Manufacturing inventory has risen significantly and inflation will top 10.2 percent by year end. Meanwhile Chinese growth will slow to 5 percent in 2015,” Rewane said.
Nigeria’s trade with China accounted for 23 percent of all foreign trade in 2014. GDP Growth in Nigeria should slow to 3.5 percent in 2015 from an average of 6 percent per annum over the last six years, according to Rewane.
The tight money policy being pushed by the Central Bank of Nigeria (CBN) combined with a slump in oil prices has led to a consumer depression in Nigeria that is likely to be protracted, with negative implications for firms operating in the country, Renaissance Capital (RenCap), said in a recent note.
Nigeria’s consumer confidence index tracked by RenCap, fell to -12.4 in the second quarter of 2015, from -2.4 a year earlier and -10.0 in the previous quarter.
“As we see economic activity weakening in the short term and monetary policy remaining tight (given the Central Bank’s fixation on a strong naira), we expect the consumer depression to be protracted,” Yvonne Mhango, RenCap’s Sub Sahara Africa economist, said in a July 31 note.
Companies are adjusting to the slowdown in consumer spending by cutting staff and freezing new hire’s.
Only eight percent of multinationals plan to hire new staff in Nigeria in the next 12 months, down from 25 percent in June 2014,according to data from a recent corporate survey done by Central & Eastern Europe, Middle East and Africa (CEEMEA) Business Group.
“There were non-core staff and contracts staff that were laid off,” Austin Avuru, CEO of indigenous oil firm, Seplat, said in a July 30 interview with BusinessDay, in response to questions on how the oil slide was affecting operations.
“We also cut down almost to zero, our new hiring, so even when internal vacancies occur, we first of all see how we can do internal movements to fill up the vacancies.”
In the consumer goods and industrial business to business (B2B) sectors, some 25 percent of companies are having problems collecting receivables, while all food and beverages firms surveyed, said they were experiencing difficulties with receivables, according to CEEMEA Business Group.
For many firms operating in Africa, Nigeria is their top priority market, especially with the sluggish South African market.
But in the short term, business is likely to get softer, as the oil price moderates growth and domestic demand, and impacts the currency.
“The Nigerian market is just so dynamic and local companies are used to turmoil. We are now getting foreign exchange on the black market for over N200 per dollar,” said the country director of an industrial company.
