After a disappointing 2019 the equities market has regained its mojo since the beginning of the year as investors take positions ahead of the earnings season.
Also the recent move by the central bank to ban individuals and local corporates from the Open Market Operations (OMO) window means that current maturities cannot be rolled over, this has led to increasing liquidity in the system.
With the current abysmal rates on sovereign bonds and government short-term debt instruments often called treasury bills, investors are left with no other option than to seek alternative assets classes to invest their funds, and it appears the equities market is now the logical destination of any discerning investor.
The resurgence has seen a surge in the market indexes, however, the same cannot be said of the consumer goods index, the gauge used to measure the performance of consumer goods stocks, as at Tuesday 21 January, the index is down 5.12percent.
Amid increasing challenges, Nigeria’s market size is its biggest case for consumer companies to invest in the nation, sadly, weak consumer disposable income and high poverty rates had made the case for growth less compelling. Additionally, the country’s tough operating environment; decrepit infrastructures, porous borders, double-digit inflation and sluggish economic recovery, have further compounded sector players woes as they struggle to break-even.
To address the current dismal performance of consumer goods companies in the country, and given the critical role, the sector plays as a core component of real sector and part of the employment generating sectors in the economy, stakeholders in the industry have suggested ways to restore the sector on the path of profitability.
At the NSE-CEO Consumer Goods Sector Interactive Session, organised by the Nigerian Stock Exchange (NSE) held recently players in the industry lamented the current tepid performance of the sector and also suggested ways to turnaround the fortune of the sector.
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Some of the ways include tax incentives–to create long-term and sustainable value creation in tax collections, consolidating efforts in the public-private partnership, especially as regards infrastructure, more emphasis on de-risking the consumer goods sector to drive down costs of production to improve margins of companies.
According to a report by CSL stockbrokers, the effect of the border closure will weigh on the full-year earnings of consumer goods companies. The closure has made access to raw materials for manufacturers of cocoa beverages, for example, more difficult.
Prior to the closure of the border, cocoa beverage manufacturers imported cocoa from neighbouring countries like Ghana through trucks via the land borders rather than through the seaports. However, report from CSL revealed that the closure of the border forced these manufacturers to move their raw materials through the seaports which according to them makes freight more expensive.
“Importing and exporting goods via the seaports has exposed more FMCGs to the Apapa menace,” CSL said.
As a result, the border closure would most certainly, feed into FMCG’s fourth-quarter earnings scorecards of 2019 in the form of pressured revenue, higher production cost, and higher distribution cost.
“While we note that the percentage of export revenue to total revenue for local FMCGs is not significant, the fact that domestic consumption is still significantly pressured makes the situation worse for FMCGs,” CSL explained further in the report.
Outlook for FMCGs in 2020 remains bleak as the Nigerian federal government still maintain stance on closed borders which will mean these firms will be left with two choices; incur further cost or pass the cost down in terms of higher prices to consumers who already are feeling the brunt of rising inflation and shrinking wallets.
