The fast-moving consumer goods (FMCG) sector is facing a serious threat of collapse as consumer spending, local demand and sales have plummeted to historic lows, according to industry experts who urge immediate action to avert another economic downturn.
The high unemployment rate has eroded the purchasing power of many households, forcing them to cut back on their spending on essential and non-essential goods.
This reduction in consumption by both low and middle-income groups, experts warn, could result in lower output growth and higher job losses, which could push the economy into its third recession in less than 10 years.
Data from the Global Retail Development Index shows that Nigeria’s total sales dropped by 20 per cent from $135 billion in 2015 to $108 billion in 2021. The data for the last 18 months is not available, but the situation is believed to have worsened as inflation driven by fuel subsidy and foreign exchange (FX) reforms has reduced real incomes.
The National Bureau of Statistics (NBS) reported that household consumption growth fell to a yearly low of -4.07 per cent in 2022. The report revealed that this was the first contraction since 2019, when household consumption declined by 1.06 per cent.
Moreover, a report by Picodi, an international e-commerce organisation, indicates that the average Nigerian household spends about 59 per cent of its income on food. This is the highest percentage in the world, according to the report published in August.
The report stated that food and non-alcoholic beverages account for 59 per cent of Nigerians’ expenditure on goods and services. Nigeria ranked last out of 105 countries in the report. 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).
The report said that people in the US, Singapore, UK, Ireland, and Switzerland spend a small fraction of their income on food and non-alcoholic drinks. The US spends 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. On the other hand, some companies in the FMCG sector are thinking of cutting jobs or reducing operations to survive. They cannot increase prices for consumers who are already struggling with high costs. Some companies may even leave the industry completely.
One of these companies is PZ Cussons, which has been listed on the stock exchange since 1974 and has a market value of N75.8 billion. It wants to buy back the shares of other investors in PZ Cussons Nigeria Plc (PZCN) and then stop trading on the exchange after 49 years. Some shareholders think this is a sign that the company wants to quit the Nigerian market.
The Nigerian middle class used to grow fast, with the African Development Bank (ADB) saying that it was 23 per cent of the population in June 2022. But the naira has lost a lot of value in the last nine years, inflation has gone up and there are other economic problems that have made the middle class poorer.
Nigeria’s income per person was $2,688 in 2013, but it dropped to $2,140 in 2022. That is a 20 per cent decrease in nine years, while other countries have seen their income per person go up. The lower income per person and higher inflation mean that many more Nigerians have become poor in that time.
Many experts and organisations are also concerned about how the recent economic changes that do not provide enough support for the poor will affect them. 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.
According to the NDU, four million Nigerians became poorer in the first five months of 2023 due to the high inflation rate. The situation has worsened since June when the NDU report came out, as inflation reached 24 per cent in July.
The high cost of food has reduced the consumption of other non-food products in the industrial sector. For example, Our World in Data shows that Nigerians spend the largest share of their expenditure on food. In 2021, 59 per cent of the total consumer expenditure, which was $1,269, was spent on food.
Nigeria lags behind its peers in terms of total consumer expenditure. South Africa’s is more than three times bigger than Nigeria’s, while Egypt’s, the third largest African economy after South Africa and Nigeria, is about three times larger than Nigeria’s.
The low demand is reflected in the poor performance of many companies. FTN Cocoa Processing Plc reported sales of N235.2 million in 2020, a sharp decline from N672.1 million in 2019. In 2021, its sales dropped further to N133 million and N62.19 million in 2022.
Guinness Nigeria Plc also reported losses in recent years. For the year ended June 30, 2023, the company reported a loss of N18.168 billion, compared to N15.6 billion in 2022, a 216 per cent decrease.
E-commerce businesses are also suffering from low sales. Jumia, a leading operator with Nigeria as its main market in Africa, laid off 900 workers last year as the number of customers shrank.
The company said in its second quarter report that its active customer base fell by one million to 2.4 million customers from 3.4 million in Q2 2022. Jumia operates across Africa, but Nigeria’s ranking in its network indicates that the country’s performance is even below average. From June to August 2023, Nigeria’s rank in the Jumia network fell from 23 to 30.
It’s 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.