Nigeria’s listed Fast Moving Consumer Goods (FMCG) companies may anticipate a tougher year in 2020, if they decide to increase prices of products, according to consumer experts.
On Monday, President Muhammadu Buhari signed into a bill that among other things has effectively made possible an increase in Value Added Tax (VAT) from 5.0 to 7.5. This may prompt FMCG companies to immediately pass on the cost to end users by increasing prices.
“The expected decision is based on recent policy actions of government and also on the fact that they are not making money as before,” said Abiola Gbemisola, analyst at Lagos-based Chapel Hill Denham.
The year 2019 was horrendous for the consumer goods space as industry players faced myriad challenges from fragile economic growth to unfavourable protectionist policies of government – border closure and foreign exchange restriction for food imports. And due to the week purchasing power in the economy, FMCG firms could not increase prices of their products.
According to experts, FMCGs could experience further decline in revenues and margins this in attempt to hike prices of their products.
Damilola Adewale, a Lagos-based economist and independent consultant said that if the companies attempt to raise prices, they should expect lower sales revenue as consumers will most likely switch to cheaper substitutes.
“The decision to hike prices will put industry players in a tight corner given the price-sensitive nature of Nigerian consumers,” Adewale said.
Beer makers in Nigeria have been experiencing a decline in revenues. For example, Guinness Nigeria’s revenue fell by 4 percent to N26.9billion from N28billion in the same period in 2018 citing excise duty for the decline.
BusinessDay review of the results of 10 listed players between January and September 2019 was unimpressive as only three – Nestle, Cadbury and UACN recorded uptick of 11.2 percent, 276.9 percent and 30.2 percent in post-tax profit year-on-year.
The brewery sub-sector churned out the most disappointing numbers in the first nine months of 2019 as all players in this space recorded drastic decline in their net income. Nigerian Breweries’ bottom-line fell by 17 percent; Guinness by 47 percent and International Breweries had the greatest decline of 130 percent.
Others players such as Flour Mills of Nigeria, Dangote Sugar, Unilever and PZ Cussons all saw their net income trend downwards in the review period.
Ayodeji Ebo, managing director at Afrinvest Securities Limited posited that if companies make this move, it could further exacerbate the earnings performance of industry players.
“It will further impact negatively on their earnings because the economy is not growing significantly. They will further experience low patronage, weaker sales and if this persist for long they will cut down their cost of production which will led them to downside by cutting staffs,” Ebo argued.
The Nigerian economy is yet to recover fully from a recent recession as growth of the wider economy which printed at 2.28 percent in the third quarter of 2019 underperforms population growth rate estimated at some 3 percent.
This indicates that Nigerians are getting poorer even as gross domestic product (GDP) per capita or income per head, (a proxy for living standard), fell by 40 percent between 2014 and 2018, official data show.
According to the World Bank, Nigeria’s tepid growth is driven by weak consumer demand combined with low private investment and contracting net exports. The bank expects Nigeria to expand by 2.1 percent by 2020-end, implying that an average Nigerian might get poorer in the New Year.
BUNMI BAILEY
