Open air market in Ibadan
By Festus Akanbi
With a few days to the end of the first quarter of the year, there are indications that the effects of a drop in disposable income brought on by the hike in fuel price and the security challenges in certain parts of the country are expected to have a negative impact on the fast moving consumer goods market.
Although government officials have been downplaying the effects of the phased withdrawal of fuel subsidy on the overall economy, independent analysts confirmed that inventory figures from the FMCG sector have gone up, signifying a slowdown in demand for household goods.
A report presented at the March breakfast meeting of the Lagos Business School by managing director, Financial Derivatives Company, Mr. Bismarck Rewane showed that Nigerians are facing increased budgetary constraints leading to consumption substitution at micro and macro-levels.
According to the report, anecdotal evidence suggests a 10-20 per cent decline in certain FMCGs. The immediate result, the report showed, is that retail sales were flat in shopping malls in January and February.
Giving further clarification on the report in an interview with THISDAY at the weekend, Rewane said the scenario created by the federal government decision to raise the price of fuel from N65 to N97 last January has made it necessary for many Nigerians to make hard choices, a development which he said would impact the aggregate demand for goods.
He explained that customer traffic to Lagos shopping malls has fallen by 40 per cent given the high cost of transportation, which he added was worsened by the payment of toll fares along the Lekki Epe Expressway and higher cost of fuel.
“When a consumer living in VGC, for example, decides to go to the shopping mall, he has to pay toll fares twice, in addition to higher cost of fuel he is bound to incur. The immediate effect of this is that such a consumer, having weighed the higher cost of going to the shopping malls, may decide to go to any nearby shop to get what he needs, although he may not get the quality he needs,” he said.
He noted that distribution costs have equally gone up within the first quarter of the year at a period while disposable income has dropped substantially.
He, however, predicted that the current decline in disposable income may soon change as we enter the second quarter of the year.
A gloomy picture of the situation has also been painted by some of the operators in the FMCG sector. It was gathered that apart from making it difficult for them to conveniently explore the potential of a large market which the north provides, the series of bombings in some states in the north has impeded formal and informal trade with neighbouring countries.
Lamenting the impact of the current security situation in the north, marketing director, Promasidor Nigeria Limited, Mr. Kachi Onubogu said virtually all the operators are feeling the pinch of the threat to lives and property in some states in the north.
Speaking at a retreat for business editors and brand reporters in Lagos a fortnight ago, Onubogu said operators in the industry have suffered greatly from the activities of Boko Haram in the northern part of the country.
He explained that for obvious reasons, that section of the country accounts for a high percentage of the market for some of their products especially tobacco and beverages.
He explained that the security challenge has made it difficult for operators in the sectors to conveniently market their products while it is also becoming increasingly difficult to get the products to the neighbouring African countries through some states in the north.
Market watchers confirmed that the full effect of these developments will surely manifest in the operating performance of some of the FMCG companies in the first quarter of the year.