Concerns have been raised by analysts on the inability of Nigerians to increase spending as they see no relief in sight going into the second half of the year.
This is on the back of fragile economic recovery which has eroded the purchasing power of many in a country that has the poorest people in the world.
“Recent happenings within the Nigerian economic and political space continue to put pressure on the income of consumers and consequently the consumer spending. Rising levels of inflation continue to erode the real value of the Nigerian consumer income reducing thus their purchasing power, and coupled with ever increasing unemployment level further compounds the woes of the average Nigerian consumer as their demand for goods and service prints at an all-time low,” Abayomi Ogunjobi, Head Investor Relations/CEO Arrhenn said.
The dampened consumers’ wallet among other factors; smuggling of cheap products, insecurity in the Northern Nigeria, and the Apapa gridlock has affected the performance of firms in the Fast Moving Consumer Good (FMCG) sector.
“The Consumer goods space remains fundamentally weak particularly due to Weak consumer pockets, Increasing Brand competition and inability to pass through increasing costs. The implication of this is lower margins for most of the FMCG companies,”Ayorinde Akinloye, a consumer goods analyst at Lagos-based CSL Stockbrokers said.
Data from the National Bureau of Statistics as analysed by BusinessDay revealed that since 2015, Nigeria’s annual population growth rate of 2.6 perecnt has remained lower than the country’s economic growth rate, even after its exit from recession in second quarter of 2017.
According to World Data Lab, a predictive analytics social enterprise, Nigerians living in extreme poverty crossed the 83 million mark in 2018, surpassing India’s number of extremely poor at 73 million.
This means that almost one out of every two persons living in Africa’s most populous nation is now living in extreme poverty.
According to economists Nigeria’s current title did not come as a surprise considering the most populous nation in Africa has an unemployment rate that has ballooned to a nine-year high of 23.1 percent in the third quarter of 2018.
“Going forward, I expect these challenges to persist which could go further to impact profits by the end of the year. The catalyst we are looking towards is the implementation of the minimum wage without affecting consumers in the sense that for example, the government does not raise taxes or remove subsidy to meet the new obligations. This in my opinion is a big ask for the FGN, thus the minimum wage might not impact consumer income as it could involve “robbing peter to pay paul”. Overall, we are downbeat on the consumer goods space,” Akinloye concluded.
At the end of the first quarter of 2019, the largest consumer goods firms made N419.14 billion, a 3.78 percent reduction from the N435 billion realized in the same period in 2018, as compiled from BusinessDay analysis of the firms’ financials.
Average net margins fell to 7.07 percent in the same period, a 9.17 percent decline compared to the previous year: meaning the companies are finding it difficult to turn each naira generated in sales into higher profit fuelled by harsh economic environment.
A dive into the first quarter financials of eight consumer goods players revealed that five firms including Unilever, PZ and Dangote Sugar posted declines in their revenue.
Revenue of Unilever dipped 21 percent to N19.2 billion in the first three months of 2019, from N24.3 billion in the previous comparable period. PZ Cussons’ top-line contracted by 13 percent from N63 billion to N55 billion in the first nine months ranging from June 2018 – February 2019.
Among the brewers, while Nigerian Breweries and International Breweries saw revenue jumped 3 percent and 35 percent respectively, Guinness’ top-line shed 4 percent.
According to a H2 outlook report by Afrinvest Research, the consumer goods index declined the most, falling 16.9 percent in the first half of the year as the traffic gridlock in Apapa coupled with dumping of goods, took toll on the revenue and earnings performance of companies in the sector.
“The foregoing no doubt would impact the fortune of most FMCG companies, as consumers would rather save to consume only necessities and shun luxury until improvement is evident in the economy,” Ogunjobi projected.
Endurance Okafor
