• Thursday, March 28, 2024
businessday logo

BusinessDay

Low product order in August shows manufacturers battling shrinking wallets

Manufacturing

The Purchasing Manager’s Index (PMI) for the month of August released by the Central Bank of Nigeria (CBN) revealed that despite recording consecutive expansion, demand for product has declined.

The PMI usually computed based on five major metrics, including production level, level of new orders, suppliers delivery time, employment level and raw materials inventory . For the month of August, the PMI report noted that “supplier delivery time and raw materials inventories grew at a faster rate while production level, new orders and employment level grew at a slower rate in August 2019.”

Analysts are of the opinion that the decline in consumer purchase is tied to mixed economic conditions that have hurt consumer spending.

A report released recently by CSL research states that the demand for manufactured products has declined due to economic conditions constraining consumer purchasing power.

Poverty rate has worsened in Africa’s most populous nation, with 98 million living from hand to mouth. Unemployment rate is 23 percent, meaning that almost 46 million people—above Ugandan population—are jobless.

This buttresses manufacturers’ claims of debt incurred from unsold stocks. Furthermore, despite the increasing cost of production, manufacturing companies are unable to increase prices of goods as this will further discourage consumers.

Nigerian breweries, a giant brewer, recorded a decline of 41.2 percent in its profit for the year 2018, having had N33 billion in 2017 and N19 billion in 2018. The company’s net revenue also reflected a decline of 5.8 percent, recording N324.4 billion in 2018 from N344.5 billion realised in 2017.

Jordi Borrut Bel, MD/CEO of the firm, stated that the business environment in Nigeria was quite challenging in 2018, adding that economic upheavals, which increased inflationary pressures and also constrained consumer’s purchasing power, affected beer consumption in 2018, which consequentially affected the volume of sale the company recorded in 2018.

Related News

The Nigerian breweries is not the only company bearing the brunt of low consumer purchase.

Adesola Sotande-Peters, vice president of finance at Unilever Nigeria, also disclosed during a breakfast meeting that the Fast Moving Consumer Goods (FMGCs) company is battling low consumer purchasing power as the sector is highly dependent on foreign exchange to source for raw materials which increases its cost of production.

Consumer’s sensitivity to product prices means firms cannot increase prices at will, with consumers willing to switch products.

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 the 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.

 

Gbemi Faminu