Nigeria needs deliberate policies that will eliminate poverty, grow consumer income and spending to rejuvenate its ailing retail industry, and as well boost jobs.
After the US and Vietnamese negotiators signed a sweeping bilateral trade agreement (BTA) in 2000, Vietnam opened up its economy to foreign investment, expanding the role of the private sector with market-based reforms and economic liberalisation.
It relaxed taxes, registration and other limitations to business, prompting foreign investors to troop in.
Its foreign direct investment (FDI) stock was $161 billion in 2019, with 581 foreign firms operating in the country, according to Nguyen Bich Dat, head of the foreign-investment department at the Ministry of Planning and Investment, Vietnam.
With FDIs, consumer spending rose, kick-starting an evolution in the retail market. Growth surged, with the country reporting almost 7 percent GDP growth per annum between 2000 and 2002, and 8.4 percent in 2005.
Growth came with gradual poverty reduction and improved consumer spending. A 2019 Mckinsey report estimated Vietnam’s retail market at $108 billion in annual revenues and is forecast to increase at a 7.3-per cent CAGR over the four-five years.
“Vietnam’s private consumption rate of 68 percent of GDP is the second-highest in the Asian region,” the report stated.
In 2013, McKinsey estimated $40 billion growth opportunity in food and consumer goods in Nigeria, noting, “We expect that the next chapter of emerging middle-class growth will be in the retail sector.”
But this is looking like a missed opportunity with poverty nearly 50 percent in Nigeria. The middle class is in retreat, starving the economy of a vital spark for sustainable growth.
SEE ALSO: 64% of Nigerian employees at high risk for ‘burnout’, severe mental health
Damilola Adewale, a Lagos-based economic analyst, recommends providing gainful employment opportunities and mobilising efforts towards reducing inflation, especially food inflation, as ways to boost consumer spending in the economy.
“A stable currency is also important because if the naira continues to depreciate, food and core inflation will rise, thereby reducing consumer purchasing power,” Adewale says.
The middle class is the largest portion of the population comprising individuals and households who fall between the working class and the upper class within a societal hierarchy.
Due to its large size, it has the ability to drive consumption growth but is easily vulnerable to falling below the poverty line.
According to the United Nations’ classification, the middle class lives on $10 – $100 a day while the African Development Bank (AfDB) sees the middle class as those who live on $2 – $20 a day.
A typical middle-class family tends to own a home, one or two cars, have children who attend private school and have enough disposable savings to afford certain luxuries like dining out and vacations.
“Before 2017, most of the middle-class families in Nigeria were working in the financial and public service. So, the standard of living was relatively better,” Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, states.
Before Nigeria’s economy slipped into recession in 2016 due to low oil prices, the middle class was expanding along with consumer spend as retailers and manufacturers saw big business opportunities.
The distribution chain and the organisation of outlets continued to reflect those of a rapidly evolving economy as standards of living improved.
According to a 2014 BusinessDay Retail report, Nigeria’s population grew from 150 million in 2006 to an estimated population of 171 million people by 2013.
And in the midst of this, the middle class expanded then even as 51 percent of the country’s population lived in cities.
But despite the county’s exit from recession in the second quarter of 2017, its purchasing power still remains weak as the economy is yet to recover fully from the recession, with negative per capita income growth.
The economy, which expanded by 2.27 percent in 2019, still underperformed population growth rate estimated at some 3 percent.
Foreign retailers like Mr Price and Shoprite have announced plans to leave Nigeria as a result of low sales caused by the shrinking middle-class and low consumer spending.
Cheng Fuller, a retail expert, says that most businesses that targeted the middle of the pyramid are experiencing significant shrinkage in their revenues.
Data from the National Bureau of Statistics (NBS) on Gross Domestic Product (GDP) by Income and Expenditure approach show that consumption expenditure of households has been declining at varying pace since it rose by 1.5 percent in 2015.
Worse still, the per capita income in Nigeria has declined to $2,049 in 2018 from $3,268 in 2014, according to the International Monetary Fund (IMF).
Two years ago, Nigeria overtook India as the country with the largest number of people living in extreme poverty, thereby becoming the world’s poverty capital, according to the Brookings Institute.
This year, the number has risen to 91.6 million from 87 million in June 2018. Every minute, six Nigerians enter the group of extremely poor people, according to the World Poverty Clock.
With the present negative growth recorded in the second quarter of 2020, the economy is in dire straits as it is confronted with three critical macroeconomic issues: soaring unemployment, rising consumer prices and economic downturn, which could further shrink consumer spending.
According to the NBS, headline inflation, which serves as a measure of consumer prices, rose at a faster pace for 11 consecutive months, reaching a 27-month high of 12.8 percent in July, while Nigeria’s unemployment rate came to 27 percent in Q2 2020, as more and more were rendered jobless from the impact of the Covid-19 pandemic.
Ayodele Shittu, lecturer, Department of Economics, University of Lagos, notes that there is a need to look into the agriculture chain, invest in it and that could properly give birth to more manufacturing plants, which feeds into the retail chains thereby making more people employed.
There have been strategies by the government to improve the standard of living of people such as the minimum wage increment to N30,000 in 2019 from N18,000 in 2011, job creation programmes like N-power and the planned launch of a Special Public Works Programme (SPWP), to employ 1,000 people in each local government, summing up to 774,000 jobs.
“Countries that get their national strategies right first think about creating liquidity. Because once you have liquidity, it creates employment. It does not matter how many government policies you announce, because, without liquidity, existing jobs will be destroyed,” Ayo Teriba, CEO of Economic Associates, states.
A Labour Market report by Chapel Hill Denham suggests expanding Nigeria’s economic growth frontier beyond services, to industry and agriculture, through the ease of doing business reforms and economic liberalisation policies.
“Deepening investment in infrastructure, education and healthcare will create a major boost for economic productivity, and enhance the global competitiveness of Nigeria’s private sector,” the report notes.
