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Will FMCGs navigate the murky waters in 2019?

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Some analysts are of the view that the outlook for  Fast Moving Consumer Goods  sector remains positive in 2019 on the back of economic recovery.

However, rising costs caused by decrepit infrastructure such as bad roads at the Apapa ports and volatility in material price of raw material at the international market could cast a pall on such positive prognosis.

Consumer wallets have been squeezed that the patronage for goods have dwindled, and the implication is that companies are experiencing a precipitous drop in sales.

Perhaps more worrisome is that companies is that they can no longer pass those costs to consumer because they had hiked in the price of product in 2016, and any attempt to do so in 2019 is like hitting a house fly with sledge hammer as Nigerians are getting poorer are not motivated their pulse spring.

For instance the cumulative revenue of 13 largest consumer goods firms were down 8.85 percent to N1.03 trillion in September 2018 as against N1.13 trillion the previous year. Only Nesle and Unilever bucked the trend as they recorded uptick at the top lines.

Analysts at United Capital Limited said diversified food and beverage producer such as NESTLE and UNILEVER are expected to sustain a solid outing due to continued improvement in the broad macroeconomic environment.

Expectedly, combined net profit of the 13 firms dipped 20.12 percent to N85.23 billion in September 2018 from N106.80 billion the previous year.

Of course the continued drops in sales have a negative impact on margins. For instance, the combined average net profit margin of the 13 firms fell to 5.47 percent in September 2018 from 6.18 percent in September 2017.

“In all, our best picks in the sector are NESTLE and UNILEVER, buttressed by their solid balance sheet positions, product and brand durability,” said analysts at United Capital Limited.

“We are not very positive on FLOUR MIL and DANGSUGAR, as our short-term expectation is dampened by the feedback effect of Apapa gridlock and smuggling activities on volume growth,” said analysts at United Capital Ltd.

While the economy expanded by 2.38 percent in the fourth quarter of 2018, it is still below the 7.50 percent recorded a decade ago.

According to a recent World Bank data, 92.10 percent of Nigerians live at below $5.50 a day. The reality is that most people cannot afford to buy a packet of Spaghetti or proteins.

Nigeria with a population of 180 million people has 87 million people, nearly half its population, in extreme poverty; as high inflation environment continues to erode discretionary income.

More worrisome is that the country’s population is expected to hit 400 million by 2050, making it the third most populous nation in the world. This means there will be more mouth to feed in a country where policy makers are insensitive to the plight of the people.

The Nigerian Industrial and Revolution Plan, published in 2014, identify weak purchasing power as an obstacle to industrialization in Nigeria.

 

BALA AUGIE

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