We crunched the numbers of major players in the industrial goods sector and we found that they weren’t tasty, but some of them bucked the trend.
A decade ago investors had betted that burgeoning middle class and infrastructure deficit would spur the industry to unprecedented growth.
However, protracted economic downturn means procrastinators actually got it wrong as companies’ profit withered away like chaff blown away by the wind.
In 2016 when the economy went into a recession, the construction sector declined by 5.9 percent compared to the growth of 4.4 percent recorded in 2015.
Dangote Cement, the largest company by market capitalization saw gross profit margin fall to 43.72 percent as at March 2020, from 45.90 percent the previous year.
Lafarge Africa’s gross profit reduced to 27.67 percent in March 2020 as against 30.32 percent as at March 2019.
BUA Cement, the third-largest firm by market capitalization, saw gross profit dip to 27.67 percent as against 30.31 percent the previous year.
This means these companies are not making money on each product they sell, leaving little money to cover operating expenses and other finance cost.
No business thrives in a sluggish economy, and slow construction activities have resulted in weak sales volume.
According to the Q1-2020 GDP report published by the National Bureau of Statistics (NBS) on 24 May 2020, economic growth slowed to a nine-quarter low of 1.87 percent yoy from 2.55 percent yoy in Q4-2019 and 2.12 percent yoy in Q2-2019.
Additionally, the statistics body added that capital importation for the first quarter (Q1) 2020-the total amount of foreign investment inflows into the Nigerian economy- declined by 31 percent year on year (y/y) to $5.85 billion in the first (Q1) 2020 from $8.51 billion in Q1 2019.
There are tough times ahead for cement makers as Federal Government has reduced the amount budgeted for capital expenditure by 20 percent in the 2020 budget due to coronavirus pandemic shocks on revenue and crude oil price.
Constructions activities have been suspended across the country due to lockdown measures impose by government to curb the spread of the virus.
The International Monetary Fund says Nigeria’s economy is expected to shrink by 3.4 percent this year and Africa’s largest economy could face a recession lasting until 2021.
The insidious virus has shattered Nigeria’s economy as Brent crude oil fell from $70 per barrel at the dawn of 2020 to $20 per barrel as of April 22, 2020.
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