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Tougher times ahead for cash-strapped consumers in 2020

... VAT, border closure, electricity tariff spell doom

Times are tough economically already for consumers but it appears that the year 2020 may look even bleaker already for cash-strapped Nigerian consumers, according to BusinessDay survey of three analysts on the outlook of consumers in 2020.

Already, there are telling signs of the hard times ahead for consumers, given the increment in Value Added Tax to 7.5 percent effective this month January 2020, combined with continued closure of the land borders as well as possible hike in electricity tariffs, a tougher year beckons for consumers.

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In 2019, consumers faced myriads of challenges from fragile economic growth to unfavourable protectionist policies of government – border closure and foreign exchange restriction for food imports which elevated food prices.

“Consumers will be worse off this year than in 2019 mostly in terms of price increase. The border closure if extended will continue to affect prices of major commodities. Although we had seen elevated prices of major food items in December, those prices will begin to come down mostly in January and February but where you will see that increase is from consumer goods firms,” Ayorinde Akinloye, consumer analyst at Lagos-based CSL Stockbrokers said.

“And this is because if you look at a survey of household income, over the past few years you will notice that there has been some moderate recovery in consumer income. Last year consumer income was estimated to be have grown to about 8.8 percent last year. So if firms are seeing this then we might see some 10-20 percent jump in their prices which will ultimately affect consumers,” Akinloye said.

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.

Read also: NDIC: Understanding consumer protection in the digital age

This indicates that Nigerians are getting poorer even as GDP per capita or income per head, a perfect 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.

An analyst who wishes to be anonymous said that the increase in prices will put more pressure on disposable income.

“This year, consumers will be priorizing their expenses more.2019 was already challenging enough and 2020 looks like as if it is going to be worse,” he said.

Apart from consumers, it is also expected that Nigerian listed fast moving consumer goods companies could see further decline in revenue and margins in the year 2020 on attempt to hike prices of their products.

“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.

According to Damilola Adewale, a Lagos-based economist and independent consultant, if they attempt to raise price, 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 further said.

A research report by Lagos-based Coronation Merchant Bank published earlier in 2019, corroborated Adewale’s stance, that most Nigerian consumers are leaving premium brands for cheaper value brands.

Also, data from the National Bureau of Statistics on Gross Domestic Product (GDP) by Income and Expenditure approach at 2010 purchaser’s values show that consumption expenditure of households has been declining at varying pace since it rose by 1.5 per cent in 2015.

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