Volatile global oil prices spell opportunity for retail markets in Nigeria, as Africa’s biggest economy flounders and searches to consolidate economic diversification away from the instability inherent in commodity prices.
The words ‘Nigeria’ and ‘economy’ have been synonymous to sprawling oil fields and vast sums of petrodollars. Nigeria surely has an enviable supply of the world’s most valuable commodity, and the country’s oil and gas sector has been the key driver of the economy for many decades, constituting about 14 percent of Nigeria’s Gross Domestic Product (GDP) and 95 percent of its foreign exchange earnings.
However, retail markets in emerging economies, such as Nigeria were forecast to inject over $25 trillion into the global economy by 2025 according a McKinsey report of 2010. A subsequent McKinsey report published in 2012 updated the previous report and stated that by 2025 urban consumers are likely to inject $20 trillion annually in additional spending into the world economy.
This is driven by rapid urbanisation. Now, catering to this blossoming urban consumer classes would require a boom in construction of buildings and infrastructure.
One way to boost Africa’s most populous nation’s economy, helping it recover from the current economy downturn is to pay attention to new models and sources of economic growth.
The retail market holds this promise. Consumer-facing industries have quietly grown into a significant economic force and are poised to continue growing. Over the last decade, the Nigerian telecommunications and banking industries have experienced rapid expansion, serving pent-up demand and a fast growing middle class, a McKinsey report wrote.
Niyi Yusuf, who is the country manager of Accenture, a global technology and strategy firm in a recent interview with BusinessDay pointed to the enormous potentials resident in online retail. He said “during the Black Friday, Konga had a turnover of over N100 million in one day. So, that tells you about the size of the market. E-commerce is retailing enabled by technology.” This is only a segment of the retail market in Nigeria.
“We expect that the next chapter of emerging middle class growth will be in the retail sector. Fueled by a new generation of Nigerian consumers, wholesale and retail sales are already the third largest contributors to Nigeria’s GDP, contributing 16 percent to the total, albeit mostly through informal markets. We estimate that between 2008 and 2020, there is a $40 billion growth opportunity in food and consumer goods in Nigeria, the highest of any African nation. Despite the fact that Nigeria’s GDP per capita is $1,443, we believe that formal retail chains have a significant opportunity to capture the growth in this market” a McKinsey report stated.
A deeper drill reveals that every square foot of Lagos, Nigeria’s largest city is put to use for buying and selling, cooking, building, and living. The crowded, energetic activity never stops. Purchases are made in stalled traffic and on congested street corners. Locals can find products from food and clothing, to cell phones and tire irons right in the midst of the sprawling, bustling foot and car traffic. The retail “market” in Nigeria is not contained. It is everywhere, contented a Nielsen report.
Lagos is home to a young and educated population. In fact, over 50 percent of Nigeria’s population is under 20 years of age. Nielsen survey results reveal that this young crowd is academically oriented and conscious about their personal appearance, with almost one third of their total household spending on education, clothing, and personal care.
Nigerians love entertainment as 86 percent of those surveyed own a colour television. Nigerians are increasingly getting connected through mobile phones. At 93 percent, penetration of mobile phones amongst respondents in Nigeria is higher than the African average.
To unlock potentials in the retail market, a number factor must align. BusinessDay’s analyses show that economic policies of Nigeria’s President Muhammadu Buhari are failing to spur growth. Nigeria’s misery index, which combines the unemployment rate and year-over-year growth in its consumer price index recently, spiked to over 21.3 levels, a blow to the president’s economic philosophy.
Nigeria’s inflation rate of 16.1 percent as at July, and an unemployment rate of over 14 percent (forecast to rise sharply), is pushing the country closer to the top of the list of most miserable economies, which include Venezuela, Argentina, South Africa, Greece and Ukraine. This stalls growth in the retail market.