These are not the best of times for players in the consumer goods packaging industry as companies continue to record a significant decline in their sales.
The decline in sales has seen inventory build up on the back of pedestrian economic growth worsened by tapped out consumers, thereby posing a threat to thousands of workers in Nigeria’s consumer goods and packaging industry.
Early in the year, Africa’s biggest packaging company, Nampak, producer of high-quality folding carton products for the tobacco, food and consumer goods segments, which has operations in Nigeria, announced that it has entered into a definitive agreement with AR Packaging Group AB, a Swedish cigarette pack maker, for the disposal of its wholly-owned subsidiary Nampak Cartons Nigeria.
André de Ruyter, Nampak CEO, said the disposal of the cartons business in Nigeria is in line with Nampak’s on-going strategy to sharpen its focus on strategic substrates.
“We continue to rationalise the portfolio to improve returns on capital and reinforce our strategic intent, proceeds from this disposal will further strengthen the company’s financial position,” he said.
Nampak Cartons Nigeria was established in 2004 and has continued to serve a broad market of primarily multinational customers in the tobacco and food segments from its production facility in Ibadan, Oyo State, and currently employs approximately 200 personnel.
Checks by BusinessDay on highly capitalised consumer goods companies listed on the Nigerian Stock Exchange (NSE) revealed alarming weak sales in the sector.
For instance, revenue of Nigerian Breweries plc, Nigeria’s largest brewer by market share, in the first six months of 2019 dropped 1.43 percent to N170.19 billion from N172.26 billion achieved in the same period a year earlier.
Interestingly, Diageo-owned Guinness in its full-year 2019 recorded a decline in the bottle and can packaged drinks but saw some growth in plastic bottles drinks. The revenue of company fell 8 percent to N131.49 billion in the financial year from the previous year.
Similarly, Dangote Sugar Refinery witnessed a 4.42 percent decline in sales to N80.36 billion in the first half of 2019. Unilever Plc sales dropped 1.70 percent to N23.42 billion in the review period, while Dangote Flour Mills’ revenue was down some 13.57 percent to N48.74 billion.
The manufacturing sector was the largest contributor to the Nigerian economy in the second quarter of this after Agriculture, Trade and Information & Communication, according to data obtained from the National Bureau of Statistics (NBS).
The sector contributed 9.1 percent to the country’s economy in the period, largely supported by the food, beverage and tobacco segment which accounted for 46.3 percent share.
Unsurprisingly, a slowdown of growth in food, beverage, and tobacco between April and June this year by 1.22 percent as against +2.93 recorded in the first three months of 2019 fuelled the manufacturing sector’s first contraction in almost two years.
According to the Manufacturers Association of Nigeria (MAN), about 1,335 fresh jobs were added to the food, beverage and tobacco sectoral group in the second half of 2018. In that period, the subsector recorded an average growth of 2.56 percent, faster than its Q2 2019 performance.
This implies a further decline in growth or a contraction in the segment would heighten the tendency of a job loss spree and further worsen the nation’s unemployment rate which stood at 23.1 percent as at the third quarter of 2018.
Samuel Onwuka, a Lagos-based manufacturer, said major raw materials used in the packaging industry are glass, cartons, aluminium, caps, and corks, but the most common is plastic.
An active packing industry would suggest that the manufacturing sector is active and is alive to make its contribution to the economy, according to Onwuka.
But an inactive packaging industry would mean that their primary clients, the manufacturers who place orders for packages for the products they produce are having bad days at the factory, and are not placing orders, which is a piece of bad news for the economy.
“The low patronage by consumers will also, have its ripple effect on packaging companies and this could force some to downsize on their workforce or shut down till the situation gets better,” Onwuka said.
OLUFIKAYO OWOEYE & OLUWASEGUN OLAKOYENIKAN
