By Helen Oji and Gloria Nwafor

11 September 2023   |   4:40 am

• Inflation, high transport costs shrink income
• Planned layoffs threaten low-paying jobs
• High cost of children’s education takes toll on households
• Consumer expenditure of South Africa, Egypt triples Nigeria’s
• Yusuf: Businesses need new credit to survive
 
Poor consumer spending, local consumption and weakening sales and low consumption are currently reducing the chances of survival and shrinking the profit margin of companies in the fast-moving consumer goods (FMCG) sector, with experts calling for an urgent intervention to prevent another recession.

With many households suffering from the effect of high unemployment, the purchasing power of many households has dropped to a record low, causing a drastic pullback in consumer spending.

The pullback by both low and middle-class, experts are worried, could trigger a slower output growth and cause a significant rise in the unemployment rate, which would ultimately lead to a recession, the third in less than a decade. 

According to data obtained from the Global Retail Development Index, Nigeria’s total sales which stood at $135 billion in 2015 declined by 20 per cent to $108 billion in 2021. Data covering the past 18 months are not available but Nigerians are believed to be worse off as higher inflation caused by fuel subsidy and foreign exchange (FX) reforms shrink real incomes.

The latest report from the National Bureau of Statistics (NBS) said household consumption growth dropped to a year low of -4.07 per cent in 2022.
 A breakdown of the report showed that the contraction recorded last year was the first since 2019, when household consumption shrank by 1.06 per cent.

Similarly, data compiled by Picodi, an international e-commerce organisation shows that the average Nigerian household spends about 59 per cent of its income on food. That’s the highest in the world, according to the report published in August.

Picodi researchers analysed statistical data from 105 countries and calculated how much money people spend on their groceries worldwide. Nigeria ranked 105th out of 105 countries.

The report said food and non-alcoholic beverages make up 59 per cent of Nigerians’ spending on goods and services. Nigeria’s situation is worse than other countries with high spending on food such as Bangladesh (52.7 per cent), Kenya (56.1 per cent), Myanmar (56.6 per cent), and Laos (50.6 per cent).

In contrast, residents in the US, Singapore, UK, Ireland, and Switzerland spend less than a tenth of their income on food and non-alcoholic beverages. The US is 6.7 per cent, Singapore – 8.4 per cent, the UK – 8.7 per cent, Ireland – 9.2 per cent and Switzerland – 9.9 per cent, the report said.

The Guardian learnt that some companies in the FMCG sector are considering layoffs as they reduce operations as a survival strategy. A few others may opt for total exit from the industry as they can no longer pass the rising costs and high input costs to already beleaguered consumers.

Already, PZ Cussons, one of the firms listed under the sector in 1974 with a market capitalisation of N75.8 billion, has announced plans to acquire shares held by other shareholders of PZ Cussons Nigeria Plc (PZCN) and subsequently delist from the exchange 49 years after listing. Shareholders argued that the decision may be part of its plan to exit the Nigerian market.

The country’s middle class had undergone rapid expansion, with the African Development Bank (ADB) estimating that the class made up 23 per cent of the population as at June 2022. However, the steep naira depreciation witnessed in the past nine years, runaway inflation and other macroeconomic challenges have eroded the purchasing power of the group.

While Nigeria’s per capita income stood at $2,688 in 2013, it dipped to $2,140 in 2022. The figure fell by about 20 per cent nine years later, unlike other countries where the growth is positive. The drop in per capita income and fast-rising inflation suggest that many more Nigerians have been pulled into the poverty trap in the period.  

Both international development organisations and local economists are even more worried about the impacts of the recent economic reforms that discountenance adequate palliatives. For instance, the World Bank in its 2023 Nigeria Development Update (NDU) said the subsidy removal would render another 7.1 million Nigerians poorer and the cash handout as originally planned could only restore 1.7 million to their original economic state. The government had planned to give out N5,000 to 10 poorest individuals monthly. 

NDU also disclosed that the inflation rate had pushed four million Nigerians into poverty in the first five months of 2023. Today, inflation is even worse than it was in June when the NDU was released, hitting 24 per cent in July. 

Consumption of non-food industrial products may have been adversely affected by the proportion of income that goes into food. For instance, according to Our World in Data, Nigerians spend the highest percentage of expenditure on food. As at 2021, the figure was 59 per cent out of the total consumer expenditure, which was $1,269, went into food.  

The country is behind its peers in total consumer expenditure. South Africa’s is over three times larger than Nigeria’s while that of Egypt, the third biggest African economy behind South Africa and Nigeria, is about triple of Nigeria’s. 

Weak purchases are showing across corporate performances. FTN Cocoa Processing Plc, in its 2020 full-year result reported sales of N235.2 million, down from N672.1 million achieved in the corresponding period in 2019. In 2021, its sales dropped further to N133 million and N62.19 million in 2022.

Guinness Nigeria Plc has also reported poor performances in recent years. For the period ended June 30, 2023, the company reported a full-year loss of N18.168 billion against N15.6 billion recorded in 2022, representing a 216 per cent decline. 

Poor sales are currently hitting hard on e-commerce businesses. Jumia, a major operator with Nigeria as the lead market in Africa, sacked 900 workers last year as the customer base contracted.

The company, in its second quarter report, said its active customer base fell by one million to 2.4 million customers from 3.4 million recorded in Q2 2022. Jumia operates across Africa but the fall in Nigeria’s ranking in its network shows performance of the country’s operation is even below average. From June to August 2023, Nigeria’s rank in the Jumia network fell from 23 to 30.

Its Q2 2023 financial result showed a 28.1 per cent decline in its customer base as inflation bites in its major operating markets – Nigeria, Ghana and Egypt, it stated in the financial.

An independent investor, Amaechi Egbo, argued that the sustained shift towards essential purchases for the majority of Nigerian consumers is impacting negatively the demand for FMCG products with the attendant effect on sales, revenues and profits, which portends a big threat to economic growth.

According to him, while consumer spending creates economic activity, declining wage growth and contraction in spending are considered characteristics of negative growth, and a sign of a possible recession.

He noted that before Nigeria entered recession in 2020, the economic environment had been in stagflation fuelled by a high unemployment rate and continuous rising inflation rate, which is typical of what is happening presently.

Egbo stated that the country has been particularly vulnerable to global shortages of supply and, subsequently, the rising importation costs of vital commodities like fuel, wheat, and fertilisers.

According to him, the situation has been worsened by the steady depletion of the country’s foreign exchange reserves, translating into persisting naira depreciation. He warned that failure on the part of the government to urgently rejig the economy and restore it to a path of sustainable growth to stimulate businesses and increase the purchasing power of the people may plunge the nation into recession in 2024.

A professor of economics at the Lagos Business School (LBS), Bongo Adi, said Nigeria is already tilting to a point of depression as every sector of the economy is negatively impacted which would continue to undermine productivity.

Director-General of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, who described the hardship in the country as a cause and effect, said when the regulatory and legislative environment becomes toxic and unfavorable, it will automatically affect the cost of goods and services.

He said there is a need to regulate the macroeconomic fundamentals through appropriate policies that are more favorable. According to him, when this is done, businesses will become more productive and capacity utilisation will increase, which would trickle down to an increase in wages in the private sector and create employment.

In his submission, the Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the new administration has embarked on corrective reforms that came with some challenges for the citizens, especially the hike in food prices, transportation and energy. He stressed the need for the government to speed up its intervention measures through concessions, palliative and various forms of credit to grow businesses.

A widow and mother of three, based in Lagos, Toyosi Adams, lamented how her meagre salary can no longer cater to her needs and that of her three children. She expressed her ability to offset the children’s school fees as schools resume, stating that there is no hope of children going back to school.

A factory worker, Jude Thompson, said he has resorted to trekking to and fro his workplace, so he can have some stipends left to take care of himself at the end of the month.

“I work in a soap factory and earn N22,000 as a monthly salary. Before subsidy removal, I used to board a bus but with the high cost of transportation, I have opted to trek a reasonable distance before taking a bus daily which is already affecting my health,” he lamented.

An accountant with a PR firm, Emeka Kenechukwu, said that he no longer patronises food vendors but rather cooks at home to save cost. He said: “Dining out is an expensive proposition. Anyone who has been to the shops lately, whether to buy groceries or other things, will attest that prices of goods have risen sharply and there is no corresponding increase in salaries and income.

“Bread, which is the commonest food in Nigeria, is now extremely expensive and almost beyond the reach of regular folks. The cost of road transportation has also risen. Air travel is now almost beyond the reach of many. Airlines are charging over N100,000 for one-way tickets to most destinations within Nigeria. Road travel which should be the next option comes with its risks – bad roads and the threat of kidnap.’’

He pointed out that many of the consumers sold in retail outlets are imported.  He urged the government to redirect resources to productive investment to grow the economy.

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