The ghost of 2016 economic lull

economy
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Across the country, from Alaba, the largest electronics market in West Africa to outlets of Shoprite, the South African supermarket chain, the story is the same: consumer demand is weakening. Businesses that make bread, alcoholic and non-alcoholic beverages, soap, cereals, seasonings, electronics are struggling to keep costs from outrunning their profit.

Income per capita, which was $3,268 in 2014, has shrunk to $1,994 in 2018. As a result, Nigerian consumers, afflicted by the twin enemies of weak purchasing power and a slow economic recovery, now buy less of the same, buy cheaper brands or don’t buy at all.

Goods sit on store shelves and discounts, which used to woo customers, don’t work their magic anymore. Throngs of people seen at the malls today are either window shopping or shopping for the perfect selfie backgrounds.

Those long queues for bread at Shoprite have dwindled. The price of bread, a beloved Nigerian staple is set to rise. Flour prices have gone up five percent as millers struggle to stay in business. In 2018, cost of sales grew faster than revenues for four flour millers quoted on the stock market.

Even the newly approved minimum wage, however welcome, is in real terms lower than the previous N18,000. It can’t buy the same amount of goods today as it could eight years ago when inflation was benign and N160 exchanged for a dollar; today it’s N360.

Full year revenues (for 2018) of the eight quoted Fast-Moving Consumer Goods (FMCGs) listed on the Nigerian Stock Exchange (NSE) further paints a dismal picture. Their combined revenue shrunk by 4%, the lowest in 5 years. Profits dropped by 26.74% from N94.28 million to N69.07 million. The combined operating costs of five of them soared by 7 percent. Data from the National Bureau of Statistics (NBS) backs Alaba traders’ lament about the drop in patronage; the electrical electronics sector declined in five years to 3.75% in 2018 from 6.47%.

We’ve been here before; not 25 years but three years ago.

When Nigeria hobbled out of the recession, it was despite government policies. Oil prices and relative peace in the Niger Delta gave the Central Bank of Nigeria (CBN) a sizable foreign reserve with which to maintain multiple exchange rates while barring 41 items from getting dollars.

According to the Manufacturers Association of Nigeria (MAN), a trade body representing 2,500 companies, “The confidence level of CEOs in the sector, though not negative, is dwindling.” Though capacity utilisation rose by almost 2 percent in the first six months of 2018 compared to the same period in 2017, current business condition and employment prospects are limiting manufacturers’’ ability to operate at full capacity.

In its maiden MAN CEO Confidence Index, a quarterly survey that measures the sector’s pulse, CEOs of manufacturing companies say it’s easier to source for raw materials locally but access to foreign exchange has not improved.

One-quarter of the 200 CEOs surveyed agree that getting local raw materials has improved while one-quarter disagree that access to foreign exchange has improved. A little over three-fifth say bank lending rates discourage productivity (the combined loans of Nigeria’s 12-largest banks dipped in the past year).

More than over half aren’t impressed with government’s capital expenditure on infrastructure (particularly power & roads); majority say excessive regulation, multiple taxes, and inaccessible ports, are major deterrents to productivity. Overall, the sector is struggling.

Data on manufacturers’ and consumers’ confidence are long overdue in Nigeria. The MAN CEO Confidence Index is most welcome. In Kenya, for example, mSurvey, a start-up and Africa’s integrated customer experience company, has help track consumer feedback and experience trends.

For the willing and able, current or prospective, CBN Governor, Ministers of Finance; Industry, Trade and Investment, and Works, Power and Housing, the MAN CEO Confidence Index is handy guide for exorcizing the ghost of recessions past.

  

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