On September 4, the Flour Mills of Nigeria had its annual general meeting in Lagos. Its group financial statement showed that revenue fell 3 percent to N527.4 billion in March 2019, as against N542.7 billion in March 2018. Profit from continuing operations slumped by 71 percent to N4 billion, from N13.61 billion in the previous year.
The flour miller is not the only one that faced tough times. From McNicols to Okomu, firms were hit by shrinking consumer wallets made worse by rising poverty levels and smuggling. Poverty rate in Africa’s most populous country is almost 50 percent, with 23.1 percent of the population without jobs.
“Upper middle-class earnings in Nigeria are falling in real terms and there is downward pressure on private sector wages generally,” said Coronation Merchant Bank in its Consumer Report.
It admonished firms to understand that price is the key battle ground and companies with the lowest price points win.
After picking up in the first two quarters of 2017, the manufacturing sector somersaulted back into a negative trajectory. It recorded -2.85 percent growth, reflecting dilapidated infrastructure, policy flip flops and energy woes.
Smuggling was also a major issue faced by manufacturers, with competition becoming intense in many sub-sectors.
McNichols, a producer of consumer goods, was hit by the economic headwinds as its revenue dropped by 17 percent to N355 million, from N430 million in the 2018 financial (full) year. The company’s profit before tax was N20.9 million in 2018 but it dropped to N15.4 million in 2019.
Okomu Oil Palm had its turnover fall by 22 percent to N4.34 billion in 2019, from N5.59 billion in 2018. The company’s gross profit also dropped to N3.49 billion, from N4.45 billion in 2018, representing a 21.6 percent decline. Its total comprehensive income dropped significantly by 38 percent from N2.46 billion in 2018 to N1.52 billion in 2019.
Guinness Nigeria recorded N131.5 billion in turnover in the year ended June 30, 2019, which was a decline of 8 percent when compared with N143 billion in the corresponding period of 2018. The decline cut across both the domestic and export sales. In the domestic market, Guinness realised N124.9 billion, a decline of 7.9 percent when compared with N135.7 billion it made in the same market during a corresponding period of 2018.
Nigerian Breweries’ sales fell by 5.9 percent. Local sales in the financial year stood at N324.20 billion, representing 5.9 percent decline.
Dangote Sugar, a division of the Dangote conglomerate, experienced a decline in its revenue by 2.24 percent, from N80.4 billion recorded in half year 2018 to N78.6 billion in the half year of 2019. Its gross profit dropped by 8.19 percent to N21.3 billion from N23.2 billion, though profit after tax grew marginally to N12.8 billion in 2019 from N12.7 billion in 2018.
PZ Cussons is also facing tough times with series of losses caused by smuggling and low purchasing power made worse by intense competition in the soap and detergent sub-sectors.
Portland Paints’ three months to June 2019 fell to N207.34 million from N319.23 million, as profit from operations crashed from N95.2 million to N5.4 million, according to the company’s unaudited financial report for the period ended June 2019. Comprehensive income in the three months fell from N65.43 million to N2.1 million within the period.
But all hope is not lost as analysts see the African Continental Free Trade Area (AfCFTA) as capable of raising the margins of manufacturers.
“With AfCFTA coming, many Nigerian companies will have change of fortunes,” said Ike Ibeabuchi, chief executive of MD Services Limited, a chemical manufacturing and services firm.
“The AfCFTA will particularly have a positive impact on the margins of export-oriented companies, and multinationals should be the biggest beneficiaries,” he added.
Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said mostly multinationals and large enterprises are in a better position to gain from AfCFTA because their economies of scale will improve.
“They have the big market and the capacity this time,” he said.
“The continental trade is more about economies of scale and the amount of what you produce. The higher you produce, the lower the unit cost, which is why small companies will benefit but not as much as large firms,” Yusuf said.
Nigeria has signed onto the AfCFTA and it is expected to expose companies to a 1.2 billion-people market potential, as it removes barriers to trade.
The AfCFTA seeks to liberalise trade among African countries. It is targeted at a ‘borderless’ Africa, with an eye on a single market for goods and services on the continent.
ODINAKA ANUDU & GBEMI FAMINU
