Fast-Moving Consumer Goods (FMCGs) firms operating in Nigeria are struggling to stay afloat in the face of the African Continental Free Trade Area (AfCFTA) which commences five months from now.
The slump raises a red flag on the competitiveness of Nigerian companies whose readiness will be tested by top-notch firms across the continent.
Manufacturers’ margins are being hit, data from their latest earnings results show, despite the border closure which started in August that ordinarily should favour some of the firms.
AfCFTA is set to open opportunity for Nigerian companies to tap into the continental opportunities, but it also comes with a sledgehammer.
Bismark Rewane, CEO of Financial Derivatives, said last year that the AfCFTA would favour Nigeria, Kenya, Egypt and Ghana and other big countries, but warned that any government that was not effective would fail within the AfCFTA environment.
The struggles of Unilever Nigeria, one of the leading consumer firms in the country, are well noted. Revenue of the former Lever Brothers slumped 58 percent to N9.13 billion in the fourth quarter of 2019, from N21.7 billion reported in the corresponding period of 2018. Other metrics did not fare any better. There was a loss after tax of N4.76bn and other income recorded a huge decline to N65 million, from N2 billion reported a year earlier.
“This is largely a reflection of the weak demand conditions,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said.
“Sluggish economic growth impacts negatively on demand for goods and services,” he said.
If you think that Unilever is the only consumer firm that is neck deep in the slump, you are wrong.
The revenue of McNichols plc dropped 17 percent to N679.13 million from N818.56 million in the full year of 2019. Profit of the sugar maker followed similar trajectory, crashing 55 percent to N18.58 million from N40.89 million, the firm’s financials showed.
Analysis of Nigerian Breweries’ 2019 full-year results showed that revenue declined by a marginal 0.4 percent to N323 billion, from the N324 billion realised in the previous year.
The decline in revenue was due to the country’s challenging environment which also affected it in 2018, according to the company’s financial report.
“The results of the company were adversely impacted by the increased excise duty rates which came into effect during the year coupled with a challenging operating environment,” Nigeria’s biggest brewer said.
But the company’s profit before tax fell to N23 billion from N29 billion. Also, profit for the year fell by 16 percent to N16 billion, from N19 billion.
In spite of the border closure, the 2019 full-year revenues of palm oil makers Okomu and Presco dropped 3 percent and 7 percent, respectively, while profits fell 33 percent and 8 percent.
Nigerian consumers are hard hit by a slow growing economy and elevated inflation which has dug a deep hole into their wallets. Spending power is low as poverty and unemployment spread among the majority of the population. Africa’s most populous country is now the world’s poverty capital with 87 million people living in extreme poverty, said the Brookings Institute’s 2018 report. The latest unemployment rate is 23.1 percent, according to the National Bureau of Statistics (NBS).
United Capital’s recent Consumer Goods Industry Report said while Nigeria’s market size was its biggest case for consumer companies to invest in the nation, weak consumer disposable income and high poverty rates had made the case for growth less compelling.
“Additionally, the country’s tough operating environment, decrepit infrastructures, porous borders, double-digit inflation and sluggish economic recovery, have further compounded sector players’ woes as they struggle to break-even,” the report stated.
PZ’s 2019 half-year revenue dropped by 3 percent but the personal care company made a loss of N1.58 billion. Honeywell might have made a revenue gain of 6 percent in the third quarter of 2019, but it made a loss of N925 million.
Nigeria’s consumer firms, which are mainly manufacturers, struggle with poor infrastructure, high energy cost, regressive port system and multiple taxation, said the Manufacturers Association of Nigeria (MAN).
Capacity utilisation in the manufacturing sector slowed to 54.1 percent in the first half of 2019, from 54.50 percent recorded in same half of 2018, said MAN. Average number of power outages in the first half of 2019 increased to five times dally from the four times daily recorded in the second half of 2018.
Many unquoted firms are also struggling. Ede Dafinone, chairman of the MAN Export Group, told BusinessDay recently that many exporters had stopped exporting to several parts of Africa, which would eventually affect their margins in the end. He also said there was no longer any support for Nigerian exporters.
“There were issues of operating costs, forex policies, energy costs, difficult tax environment and challenges at ports. It is often not feasible to pass on additional costs to consumers because of high demand elasticity issues,” Yusuf of the LCCI said.
ODINAKA ANUDU & GBEMI FAMINU
