Consumer Spending Woes Threaten FMCG Sector and Economy

Consumer spending struggles, plummeting local consumption, weakening sales, and declining purchasing power are sounding alarm bells for Nigeria’s fast-moving consumer goods (FMCG) sector. Experts warn that immediate interventions are crucial to prevent another recession.

High unemployment rates have severely impacted the purchasing power of Nigerian households, resulting in a significant decline in consumer spending. Both low and middle-class segments are holding back on spending, raising concerns about slowed output growth and rising unemployment rates. If not addressed promptly, these factors could trigger a third recession in less than a decade.

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Sales Decline in the FMCG Sector:

Data from the Global Retail Development Index reveals that Nigeria’s total sales dropped from $135 billion in 2015 to $108 billion in 2021, marking a 20% decline. The past 18 months, marked by high inflation due to fuel subsidy and foreign exchange reforms, have likely exacerbated the situation. The National Bureau of Statistics reports a 2022 household consumption growth rate of -4.07%, the first contraction since 2019.

An international e-commerce organization, Picodi, highlights that Nigerian households spend a staggering 59% of their income on food, the highest globally. This economic pressure has repercussions for non-food industrial products consumption. The country’s per capita income has also dropped from $2,688 in 2013 to $2,140 in 2022, a decline of nearly 20%.

Impact on FMCG Companies:

FMCG companies are feeling the pinch, with some considering layoffs and others pondering an exit from the industry. PZ Cussons, for instance, has announced plans to acquire shares held by other shareholders of PZ Cussons Nigeria Plc (PZCN) and potentially delist from the exchange, raising concerns about its long-term presence in Nigeria.

The removal of subsidies and the subsequent impact on inflation have heightened concerns. The World Bank predicts that subsidy removal could push 7.1 million Nigerians into poverty. Inflation rates reached 24% in July, exacerbating the situation.

In a bid to cope with rising prices, Nigerians are making significant adjustments. A rise in essential spending and declining wage growth have resulted in a contraction of spending. Some individuals are resorting to cost-cutting measures, such as cooking at home instead of dining out.

Expert Insights:

Economic experts warn that the current economic climate, characterized by declining consumer spending and rising inflation, may push Nigeria further into a recession in 2024 if immediate action is not taken. They stress the need for favorable policies that promote business productivity, capacity utilization, wage growth, and job creation.

Nigeria’s FMCG sector and the broader economy face challenging times due to declining consumer spending and weakened purchasing power. Urgent measures are required to stimulate economic growth, boost businesses, and improve the living standards of Nigerian citizens. Failure to act swiftly could lead to a prolonged economic downturn.

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