Home Business ‘Sales may suffer further decline as spending weakens’Business — The Guardian Nigeria News – Nigeria and World News

‘Sales may suffer further decline as spending weakens’Business — The Guardian Nigeria News – Nigeria and World News

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‘Sales may suffer further decline as spending weakens’Business — The Guardian Nigeria News – Nigeria and World News

State-of-the-art garment manufacturing factory in Port Harcourt, Nigeria. Source:BellaNaija

Latest indicators from investment firms and analysts have shown that manufacturers in the consumer goods segment may suffer an average sales decline of three per cent this year, triggered by an inability to pass inflationary pressures to consumers, weakened purchasing power and coronavirus.

According to analysts at FBNQuest Capital, Cordros Capital, and the Manufacturers Association of Nigeria (MAN), indicators from the firms’ quarterly reports showed that gains recorded from the border closure in August 2019 having adjusted to the situations are being eroded from the effects of the coronavirus pandemic.

Insights from the industry activities showed that macroeconomic indicators, relatively slow economic growth, high unemployment, and rising prices will remain barriers to consumer spending this year.

Given the cutback in fiscal spending on account of weaker oil prices and the slump in demand faced by the private sector, portend a shrinking job market hurting overall income levels in 2020.

In their assessment of activities in the real sector, both MAN and the Lagos Chamber of Commerce and Industry (LCCI), called for urgent government intervention in the real sector of the economy.

Already, local manufacturers have expressed weaker confidence in the economy, venting concerns about the rising cost of production and low competitiveness occasioned by government’s policies.

MAN attributed the poor performance in the productive sector to the general lull in the economy; absence of synthesized fiscal and monetary policies; and poor performance of key macroeconomics fundamentals. Others are ever-increasing cost of production occasioned by an unfriendly operating environment, and the heavy disruptions in the global value chain triggered by the trade war between two leading economies, and the outbreak of COVID-19.

The operators then called on the federal government to declare a state of emergency in the manufacturing sector, which MAN believes would enable the government to study the current state of the sector, and craft sustainable stimulus packages to herald the recovery of the industrial sector.

As the realities of the pandemic gradually materialise, the analysts project a six percent depreciation of Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rates from current levels to $/N410 by year-end.

They added that the planned increase in electricity tariffs in July, also potentially adds to inflationary pressures for the consumer, saying: “We particularly expect these to drive up prices of most essential items such as food, petrol and transport.

“Essentially, we see an overall downturn in spending this year with a fragile recovery going into next year, in line with our 2021E GDP growth forecast of 2.2%. We also continue to see a greater display of price sensitivity than brand loyalty across goods and services.

“A downside risk to our outlook that could further drive spending lower is a potential reversal of the 14% reduction in petrol pump prices to N125/litre. Indeed, the group head of state-owned NNPC has been quoted recently saying the corporation will no longer resort to either subsidy or under-recovery of any nature. Going by this remark, a strong upswing in crude oil prices therefore translates to higher pump prices for consumers.

“Meanwhile, we are cautious of the timing of a post-COVID recovery. Although currently, movement restrictions are gradually being phased out, the number of active COVID-19 cases nationwide is still on the rise. This suggests that more individuals will rather stay indoors to remain safe despite a suspension of the lockdown. “Looking past the COVID phase, things are still not looking up for the sector. Headwinds are likely to persist, with little prospect of growth in real income levels. Beyond these, economic activity in Nigeria is still heavily reliant on the oil industry. This leaves the economy open to price shocks. With supply-side drivers expected to remain dominant in the crude oil market over the forecast years, demand tailwinds are very much unlikely,” FBNQuest Capital noted.



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