For the consumer goods firms to bounce back after a bruising year, President Muhammadu Buhari led administration will, as a matter of urgency, formulate policies that will help galvanize the economy and invigorate consumer wallet.
Last year, it was clear the industry felt the pang of a harsh regulatory and macroeconomic environment that saw margins some of the postal child of the industry wither, while those that hadn’t recorded losses in close to a decade fell of the cliff.
While the borders were closed to curb smuggling and influx of fake and substandard products into the country, it prevented companies from importing raw materials and shipping finished products to neighboring countries.
The consequences were that revenues shrank while cost of production spiked as companies resorted to a more expensive alternate route, sea.
The gridlock at the Apapa ports and decrepit infrastructure undermined the industry in 2019, as goods were trapped at the terminals for an interminable period of time, resulting in high cost of production.
President of Dangote Group, Aliko Dangote has disclosed that his company lost N25 billion to the poor state of Oshodi-Apapa Expressway.
Across the globe, consumer spending is pivotal to economic growth because it shows people- who are employed- have money their pockets to go out shopping.
For instance, the United States of America would have sipped into a recession save for strong consumer spending as the trade war with China heightens.
The reverse is the case in Nigeria where rising inflation and fuel hike have put consumer spending in check as unemployment rate is at an all-time high of 23 percent, while the country overtook India to become the poverty capital of world.
Some companies are mulling cutting operations, as there are mixed reaction from analysts about the outlook of the industry.
As result competition especially in its Home Care Products segment and harsh operating environment, PZ Cussons UK (the parent company of PZ Cussons Nigeria) has disclosed plans to streamline the Nigerian operations over the near to medium term.
The company has released its first quarter 2020 financial statement that showed it posted a loss of N1.58b billion, and increased consumer preference for second hand electrical appliances will undermine future earnings.
Dangote Sugar may be hit by slowdown in demand for sugar and increased smuggling after the borders are re-opened, according to Chapel Hill Denham Limited.
Continuous weakness in consumer spending, increased competition from other companies and continuous increase in prices of input commodities could damp Nestle Nigeria’s future earnings.
Nestle Nigeria is the only consumer goods firms to maintain consistent earnings growth even amid the tempest.
Management of the company has ascribed its revenue growth to be results of consistent investment in its brand, marketing and route-to-market initiatives which are delivering stable demand for the company’s products.
Also, the growing sales volumes of Maggi, Milo and Nescafé are the key drivers of revenue growth with average prices largely unchanged year-to-date.
The risk to valuation to Unilever Nigeria Plc includes: further weakness in consumer spending, uptrend in the input commodity prices and increased competition from smaller HPC producers in Nigeria.
For Cadbury Nigeria Plc, a company that revert to path of profitability in 2019, continued rally in cocoa input prices and stiffer competition for peer rival Nestle are downside risks.
Consumer goods stocks were the worst sector on the NSE 30 indexm (the list of most capitalized and liquid firm on the bourse.
Consumer goods index opened for the year at 748.83 index points but has shed 20.83 percent to close in 2019 at 592.85 points.Meanwhile the All Share index depreciated by 14.6 percent to 26,842.07pts
Despite a torrid macroeconomic environment, there are untapped opportunities in the country.
For instance, a fast growing young population that crave for consumption is expected to propel earnings of companies, but this can only be so if government creates an enabling environment that makes business thrives.
The U.S. Census Bureau says that at that rate, there will be an estimated 402 million people in Nigeria in 2050.
BALA AUGIE
