Industry stakeholders tell BusinessDay that government agencies have become revenue generating bodies and are not facilitating ease of business as is expected of them, especially with regards to consumer goods manufacturers, leading to a slide in sales volumes and capacity utilisation.
“Many of the big players are neither ramping up capacity nor extending new lines and their books show it. Fast Moving Consumer Goods (FMCG) companies are reeling from this regulatory ineptitude, even as they have been hard hit by weak consumer demand and declining volumes,” a source with vast experience in the consumer goods manufacturing space said.
Last week, the news of P&G shutting down its US$300 million plant located in Agbara, Ogun state, just a year after launch by Vice president Yemi Osinbajo, was an indicator of the woes of the sector.
Declining volumes and profitability have led to massive layoffs in the sector, another industry source told BusinessDay.
“Typically in the manufacturing sector, if volumes are down, cost per unit goes up because manufacturing is a game of volume. So when your volume is down, and your cost goes up, the first thing you do is to start laying-off staff in their numbers,” the source who did not want his name in print said.
“Most of the FMCGs are operating below 40 percent capacity, and they have resorted to using poor quality inputs in their production. That is what nobody tells you. Quality is what has been compromised,” the source said.
The Society for Family Health, makers of gold circle condom, has laid off over 50 percent staff because they are in dire straits, while companies like Heinz do not even have a managing director in Nigeria, as they now run all of their activities from Dubai, while distribution is done in Nigeria.
UAC, Promasidor, GSK and P& G have also laid-off staff, according to BusinessDay investigations.
Nigeria climbed 24 spots to 145 from 169 on the World Bank ease of doing business ranking in 2018, but most of that improvement is elusive.
Doing business in Nigeria is difficult starting from the point of product registration. It now takes between 9 to 12 months to register a company today in Nigeria, the source said. Before now, it would take before now 3- 5 months.
“When government officials go to India for factory inspection, instead of checking equipment and factory environment for required manufacturing standards like their counterparts from other countries do, they ask for bribes and display a high level of ignorance as regards globally accepted standard checks,” the source told BusinessDay.
“In the face of all these regulatory inefficiencies, it would seem as though the government is not aware, but if we must make progress, they must acknowledge that there is a problem.
Bala Yesufu, an executive member of the Manufacturing Association of Nigeria Export Promotion Group (MANEG) said “The problems these agencies pose to doing business is worrisome. You would expect that these agencies will make things easy in line with the federal government’s position on the ease of doing business, but it’s not the case,” Yesufu said in a phone interview.
“To benefit from the ECOWAS Trade Liberalization Scheme (ETLS), for example, you need to register your product at the ECOWAS secretariat and you are issued with a certificate. Recently, these government agencies tell you there is a special ETLS certificate you must obtain from the ministry of finance. What then is the essence of the ECOWAS protocol?”
Weak consumer demand is also yet to make way despite Nigeria’s slim exit from recession and a consistent decline in inflation, putting a lid on the production volumes of Fast Moving Consumer Goods (FMCG) companies.
Between 2015 and 2017, average product volumes of five of the largest FMCGs- UACN, Cadbury, Nestle, GlaxoSmithKline and Unilever, cumulatively dropped by 13.6 percent to 209 million units in 2017 from 242 million units as at year end 2015. The trend may explain why profitability has been flat despite an industry wide price increase which ordinarily should translate to higher profit.
GlaxoSmithKline’s net income dropped by 49.5 percent and 88.4 percent to N486.4 million in 2017 from N965.05 and N4.2 billion in 2015 and 2016 respectively.
UACN saw profit decline by 67.96 percent to N956.07 million in 2017 from N2.98 billion in 2015, which also represents a 74.5 percent decline from the N3.75 billion profit booked in 2016.
In the same vein, Cadbury posted a loss of N296.4 million in 2016 but was able to grow net income back to N300 million in 2017. That was however a 74 percent decline compared to a 2015 profit of N1.15 billion. Unilever and Nestle however bucked the trend with a 524.8 percent and 42.07 percent profit growth respectively over the two-year period.
The consumer’s persistent woes are reflected in the regression of the Consumer Confidence Index, which in the second quarter of 2018 printed at -6.40 points.
“Consumer companies have not yet seen consumers shift back to bigger packages of a product from the smaller packs they downsized to during the crisis,” said Yvonne Mhango, sub-Saharan Africa economist, Renaissance Capital.
“The ability to push through price increases for consumer goods is limited. Consumer companies believe that for demand to strengthen, the Nigerian consumer needs an income boost and this may come in the form of the proposed minimum wage hike,” Mhango said.
Consumer companies are however expectant that liquidity will improve as the elections approach, which they expect will boost consumption, as deduced from their investor presentations.
“Government should work out medium and long term plans that ensure that companies such as P&G don’t continue to flee the country by keeping them afloat to be able offer the best of service to consumers in the country,” the source concluded.
