The restoration of relative peace in the North-East of Nigeria, following the taming of the Boko Haram insurgency, as well as aggressive marketing strategies by most of the consumer goods firms  may have impacted positively on their bottom-lines amid a weak economy.

The implication is that the Fast Moving Consumer Goods (FMCG) subsector in particular, was able to penetrate the hinterlands and villages hitherto inaccessible to sell their products.

Indusry watchers also say that the  quelling of the Boko Haram insurgency has allowed for a re-opening of the trans- Saharan trade, with a flow of goods such as soaps, creams, perfumes, plastics , pasta, beverages, fruit juices, fabrics and shoes, among others, flowing out of Nigeria into neighbouring countries, incuding Niger, Chad and  Cameroon through the north-east route.

“It should gradually begin to impact positively as normalcy returns to the region; considering that some companies such as PZ and Dangote Sugar had sizeable exposure to the region.

Also, a lot of informal cross-border trade stopped due to the insurgency, but with relative peace, this informal trade can restart,” said Pabina Yinkere, Head, and Research at Vetiva Capital Management, in emailed responses to questions.

“The price increase in across FMCG products also helped bolstered their top lines, said Yinkere.
Consequently, Flour Mills of Nigeria (FMN) Plc, the country’s biggest miller by market value, recorded a 44.48 percent increase in sales  to N119.20 billion in the first half of year, while net income spiked by 354.17 percent to N4.41 billion as its sugar business contributed strongly to the significant y/y growth in the foods business.

Also, Dangote Flour Mills (FMN) Plc’s sales jumped by 50.57 percent to N49.54 billion, while it posted a profit after tax of N1.82 billion in June 2016, from a loss of N2.33 billion in June 2015.

Dangote Sugar (DSR) Plc, the largest producer of the sweetener, recorded a 37.85 percent increase in sales to N70.47 billion in June 2016 ,as the company has raised capacity utilisation for its Lagos Refinery to 56 percent, as against 54 percent, on the back of operational efficiency.

There was an increase in the Purchasing Price Index (PMI) in the first quarter that showed there was an expansion in volume, which means they got more inventories, said Bismarck Rewane, Chief Executive Officer of Financial Derivatives Company Limited.

While Nigeria’s consumer market is still in its infancy, giving investors an opportunity to benefit from long-term growth, consumer wallets continue to face headwinds with currency weakness, high inflation, rising energy costs, job losses and an overall slowing economy.

The sector witnessed reduced competition from imported products due to scarcity of FX necessary to continue importation. The few products that made it into the country are not competitive, relative to locally manufactured products, according to Chiamaka Iwobi, equity research analyst at Meristem Securities Limited.

Nigeria’s inflation rate has risen to 16.50 percent in June; the highest in six years, caused by rising price of gasoline and higher transport fares. The economy contracted by 0.4 percent, the lowest in a decade, fuelled by a sharp fall in oil price and capital controls imposed by the apex bank. The IMF has forecast that the economy will shrink by 1.80 percent by the end of 2016.

The devaluation of the naira as a result of the adoption of a flexible exchange rate regime by the Abuja based bank caused margin contraction and  undermined the  production costs of consumer goods firms since they import most of their raw materials as DFM, DSR and FMN’s cost of sales increased by 17.67 percent,  47.22 percent and 47.22 percent respectively.

However, most firms are thinking outside the box, as they have embarked on an aggressive expansion plan with a view to increasing market share, while intensifying on backward integration strategy.

DFM, in its efforts to increase investment and employment opportunities has reopened its Kano wheat plant that has been moribund since it was acquired by Tiger Branded Consumer Goods.

Despite a weak economy as evidenced by contraction in outputs, there is light at the end of the tunnel for consumer goods firms, as analysts say  government plans to spend its way out of recession with a record N6.1 trillion, a form of fiscal stimulus will spur consumer spending.

“However, with the government poised to increase spending to jumpstart economic growth, Nigeria remains an attractive long term consumer market. One thing is sure though, in these tough times, staple food producers will continue to outperform luxury consumer goods as Nigerian consumers adjust to economic realities,” said Yinkere.