Businesses see red flag as consumers’ confidence declines
These are not the best of times for businesses in Nigeria, as non passage of the 2016 budget, rising inflation, weakened disposable income and no-clear economic direction of the government have combined to impact negatively on consumers’ confidence, forcing them to re-prioritise their consumption expenses.
Consumer confidence index plunged in the second half of 2015, when compared with first half of the same year and second half of 2014, according to research findings by Nielsen Nigeria, a global research firm.
It is also believed that the confidence would likely dip further when the first half of 2016 index is conducted and analysed following the indicative factors still playing up.
Lampe Omoyele, managing director of Nielsen West Africa, whose role at the global firm is to study consumers for comprehensive view of trends and habits, told BusinessDay that the confidence indeed declined from about 110 mark to about 104, a figure that is though relatively high in consumer research index analysis but the unprecedented decline is a sign of red flag for businesses.
Omoyele said Nigeria had always been high in consumer confidence index, saying, “The index is a base line of 100 but the decline from about 110 basis a year ago was a concern which was driven by the macro economic environment, inactivity in the economy, inflation and weakened disposable consumer income and these have impacted on the consumers and what they are beginning to feel about the future. There were also concerns that the budget has not been released and there is also not enough clarity about the economy.”
There were uncertainties among consumers before the 2015 elections but after the elections and the fortunate smooth transition, the level of confidence increased as consumers were hopeful on economic bounce back “and believed strongly that something good will happen,” Omoyele said.
“The elections took place, things went smoothly and the second quarter showed some positive and after that, people were expecting to see what will happen and were expecting results. They were not seeing the immediate kind of the hopes and a bit of concern begin to show up”.
It is feared that with the consumer hope dipping and people prioritizing their demands, following less diposable income for branded items, consumption of FMCG products would begin to decline also which would create pile up of unsold stock and subsequent retrenchments.
The decline in the consumer confidence index would naturally force company managements already experiencing forex challenges, difficulty in sourcing of raw materials back to the drawing boards for critical decisions.
For Food and Moving Consumer Good companies to stay afloat under the difficult situation, Lampe who is a master brand strategist suggested that “FMCG companies therefore have to continue to hold their market share by ensuring that people who are currently consuming their brands keep on doing so through quality and market engagement”
Lampe who joined Nielsen last year from GlaxoSmithKline Consumer Healthcare as Africa Marketing Director-Family Nutrition further said consumer value products such as beer, some soft drinks and recharge cards are goods that are moving within this period.
Lagos Chamber of Commerce and Industry recently stated that the business environment has been characterized by a lot of uncertainty. “The level of investors’ confidence has declined considerably and profit margins are falling. Many businesses are closing shops, especially those in production and those that have not closed shops are in the verge of doing so”, says the LCCI director general Muda Yusuf in a chat with BusinessDay recently in Lagos.
He regretted that prices are rising and inflation pressures are increasing and “investors are not sure exactly what direction the government wants to go. Even though we have had couples of policy pronouncements in the medium term expenditure framework in the budget, still a clear direction has not been properly articulated”, he said.
Yusuf further complained that the kind of reforms stakeholders were expecting to see at the beginning of the administration are yet to be seen especially in the oil and gas sector. “The privatization and the reforms in the electricity sector seem not to be delivering the expected outcomes as consumers are complaining about the quality of delivery of power. We all know how strategic power is to the development of a country like ours”, he said .
Responding to those that say that assessment time for the government is too early, Yusuf said it is not too early. “How long will it take to give the right kind of signals? Within few days of assumption of office, you can give kind of signals that can give the investors the confidence of your direction and people can begin to take position”.
Emerging market focused investment firm, RenCap had in a report last year predicted “With the deterioration in the macro situation in Nigeria, the dwindling disposable income of the consumer, and the anticipated devaluation of the naira, the operating environment will remain tough.”
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