Nigerian domestic market supports producers of fast-moving consumer goods

Growth of the population, set to reach 300m by 2030 and 400m by 2050, coupled with an expanding middle class, suggests there is strong growth potential for the fast-moving consumer goods (FMCG) segment, and underscores the fundamental attractiveness of the Nigerian market. In addition to these long-term drivers, manufacturers are set to benefit from improved economic performance in 2018. According to the IMF’s “World Economic Outlook” published in October 2018, GDP growth is expected to reach 1.9% in 2018, up from 0.8% in 2017.

Major Players

As a result, a number of FMCG producers have been making moves in the domestic market. In February 2018 Nestlé Nigeria launched operations at a second beverage production plant located on the Agbara industrial estate in Ogun State. The N4.1bn ($13.3m) plant will produce 8000 tonnes per annum (tpa) of the brand’s Milo malt-powder drink and create around 100 new jobs. The development follows the inauguration in December 2017 of another factory on the Agbara estate by the UK-Dutch FMCG giant, Unilever. The new $12m facility will produce the brand’s Blue Band margarine. Initial capacity will be 10,000 tpa, but the company expects to eventually increase this to 50,000 tpa.

In addition to setting up new facilities, a number of FMCG firms are expanding their product lines in response to rising domestic demand. In December 2017 the Europe-based dairy cooperative, Arla Foods, which specialises in blending and repackaging milk powder produced in Europe under the brand name Dano Milk, added two strawberry and chocolate milk flavours to production lines at its facility in Lagos.

Tailored Products

However, West African polling service NOIP olls, which measures consumer confidence on a 100-point index, showed confidence in Nigeria decreased to 60.8 points in the third quarter of 2018, down from 66.95 points in the second quarter. In light of these trends, FMCG companies are making strategic shifts to increase their share of the local market, including testing smaller packaging sizes for products to appeal to lower-income segments. Unilever, for example, is micro-packaging tea and stock cubes, offering packets containing just two items, while Nestlé has cereals available in a selection of sizes ranging from 50 g to 1 kg. In a similar move, UK firm PZ Cussons is producing smaller pack sizes for several of its products, including soap, detergent, evaporated milk and milk powder.

Companies are also manufacturing more products and inputs locally in order to reduce import costs, which increased substantially in recent years due to the depreciation of the naira and the introduction of foreign exchange controls by the central bank in 2015. The controls, implemented to shore up funds and boost local manufacturing, restricted access to foreign currency for the import of 41 items, many of which were food and cooking products.

Such moves appear to be paying off; Unilever, which has increased local production from 80% to 90% from 2015 to early 2018, saw profits increase by more than 98% year-on-year from N4.83bn ($15.6m) to N9.57bn ($30.93m) in the first nine months of 2018, according to its latest financial statements. In addition to margarine, the company produces soap, tea and toothpaste locally.

According to local stakeholders, if more manufacturers are to move operations in-country, Nigeria will need to encourage greater investment in hard infrastructure, including transport links and energy supply. “The FMCG segment looks bright, but investments could be further incentivised through the development of better road and port infrastructure, reliable power supply, a revision of the fiscal environment and an expansion of the trade treaties beyond ECOWAS to allow for increased exports across Africa,” George Nassar, former managing director of Procter & Gamble Nigeria, told OBG.

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The Report: Nigeria 2019

Industry & Mining chapter from The Report: Nigeria 2019

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