• Tuesday, May 28, 2024
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BusinessDay

Manufacturers diversify on back of increased retail opportunity, government policies

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Huge opportunities in the Nigerian retail sector as well as strategic government sector-specific policies are driving Nigerian manufacturers into aggressive diversification programmes.

This is as they now break away with the old system of producing only one type of commodity to the manufacture of varieties of products that can increase their revenue and profitability while reducing costs.

Nigeria’s retail sector has seen investments in the last two years rise by N205.4 billion, while increased consumption levels among the middle-class have brought about spike in large retail and online outlets such as Shoprite, Spar and Konga, among others.

Based on an expanding retail sector in Nigeria, McKinsey Global Institute (MGI), a global research firm, projects that consumption could more than triple, rising from $388 billion a year today to $1.4 trillion in 2030, an annual increase of about 8 percent.

Similarly, the Federal Government’s backward integration policy (BIP) has now driven a number of manufacturers into a previously captive sector such as sugar. This has seen the entry of big players such as Dangote and Flour Mills of Nigeria, among others.

Flour Mills of Nigeria is now one of the most diversified conglomerates in Africa, having recently moved into the manufacture of sugar, pasta and noodles, given Nigeria’s increased appetite for the consumption of packaged products.

Apart from BIP, demand for industrial sugar is on the rise occasioned by increased consumption for packaged foods and beverages, which have sugar as an essential ingredient.

Similarly, May & Baker, formerly known for the manufacture of Paracetamol tablet, vaccines and other drugs, has now begun production of noodles and bottled water while concluding plans to go into beverages within the next five years, according to Nnamdi Okafor, managing director of the firm.

Having also moved into noodles and pasta recently, Honeywell Flour Mills is also eyeing the sugar industry, while Dangote Sugar Refinery is already providing technical assistance to sugarcane farmers in Nigeria’s north while guaranteeing them ready markets. Apart from pasta, noodles, sacks and other businesses, Dangote Group is also on the verge of producing ethanol from sugar.

“We have seen the retail side of the market starting to develop. We see ourselves playing our part in providing basic food to Nigerian consumers,” said Graham Clark, group CEO, Dangote Sugar Refinery, in an exclusive interview with BusinessDay.

Nosak Group has also gone beyond production of distilleries and petroleum products into toothpastes for cigarette smokers and plastics. Moreover, one of the subsidiaries of Leogroup is now producing beverages, BusinessDay has learnt. Apart from Bournvita, Tom Tom and other products, Cadbury plc has begun production of Tang, while also eyeing milk production, according to industry sources.

“The Nigerian retail market is strong. Retailers are also adopting strategies and approaches,” said Haresh Keswani, managing director, Spar/Park ‘n’ Shop Nigeria, during a retail forum, held recently in Lagos

A survey by Phillips Consulting has shown that the fast moving consumer goods (FMCG) sector is a huge driver of the wholesale and retail markets, and it is characterised by low-cost items that usually have a short shelf-life.

According to the survey, online stores in Nigeria record over $2 million worth of transactions per week, approximately N1.3 billion per month and take up to 500 business orders per day. The FMCG market is currently the key driver of Nigeria’s manufacturing sector, occupying half of its $46 billion contribution to the economy. Analysts see this as an opportunity for investors who can do well.