The Federal Government’s directive to halt dollar sales for food imports could compound the woes of Nigeria’s largest retailers that are struggling to breakeven in a tough and unpredictable macroeconomic environment.
In a statement signed by Garba Shehu, President Muhammadu Buhari spokesman, on last week Tuesday, announced that he had asked the Central Bank of Nigeria (CBN) to stop providing foreign exchange for food importation in order to ensure the steady improvement in agricultural production, saying the country is now food secure.
Shoprite, Spar, Hubmart, Prince ebeano, and other operators in the industry, may see further deterioration in margins as they will have to source dollars from the black market (which is more expensive).
The implication is that raw material costs will spike, raising concerns about the ability of firms to pass on cost to the consumer.
That’s double whammy for retailers that have seen sales drop, as a fuel hike and high inflationary environment have prevented consumers from opening their purse string.
In the time of economic boom, high employment, and low inflation, people tend to spend more, and throng of shoppers hit retail stores.
“For retail stores, what you would see is higher prices of their items and considering the already weak demand and tight consumers’ purse strings, we might see downward pressures exerted on demand and consequently on sales despite their nature of necessity,” said Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers.
“And you would also see most retailers engage in price competition in order to attract tightening demand which could further lead to compression of retailers’ profit margins,” Akinloye further said.
In 2018, the retail industry in Nigeria posted slow growth in value terms at constant 2018 prices due to harsh and unpredictably macroeconomic environment and a volatile currency.
Accroding to experts, the retail sector contributes as much as 16 per cent to Nigeria’s Gross Domestic Product (GDP).
A report by McKinsey and Company, a New York-based management consulting firm, also estimated that the growth opportunity in food and consumer goods in Nigeria will reach $40 billion in 2020.
