Economic Update

Published 13 Mar 2018

Nigeria is proving to be an attractive draw for major manufacturers of fast-moving consumer goods (FMCG), supported by an expanding domestic market and renewed momentum in the broader economy.

In February Nestlé Nigeria launched operations at a second beverage production plant located on the Agbara industrial estate in Ogun State. The N4.1bn ($11.4m) plant will produce 8000 tonnes of the brand’s Milo malt-powder ready drink annually and create around 100 new jobs.

The development follows the inauguration last December 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 tonnes per year, but the company expects to eventually increase this to 50,000 tonnes.

Expanding product lines

In addition to setting up new facilities, FMCG firms are expanding their product lines in response to rising domestic demand.

Last December 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 new flavours to production lines at its facility in Lagos.

Its expansion followed the opening in June by US multinational P&G of a new manufacturing line for its feminine hygiene brand, Always, at its Agbara manufacturing plant. The company also has a second Nigerian facility, which is located in Ibadan, Oyo State. Its portfolio of operations includes the brands Pampers, Ariel, Always, Oral-B and Safeguard.

Economic rebound buoys FMCG industry prospects

The recent expansions underscore the fundamental attractiveness of the Nigerian market. Growth of the population, which is set to reach 300m by 2030 and 400m by 2050, coupled with an expanding middle class, suggests there is strong growth potential for the FMCG segment.

In addition to these long-term drivers, manufacturers are set to benefit from improved economic performance and consumer confidence this year.

GDP growth is expected to reach 2.1% in 2018, according to the IMF, up from 1% in 2017, while West African polling service NOIPolls, which measures consumer confidence on a 100-point index, showed confidence in Nigeria increased to 70.5 points in the last quarter of 2017, up from 67.5 points in the third quarter – the fourth consecutive quarter of growth.

Its findings were supported by a report from the Statistics Department of the Central Bank of Nigeria late last year, which found increased confidence in family incomes were giving rise to a more optimistic outlook from consumers.

The survey said that furniture, white goods and electronics were among the items that consumers planned to buy in 2018. However, the majority of respondents also cited expected rises in the rates of borrowing and inflation as a concern.

Persistent unemployment, which reached 18.8% in the third quarter of last year, up from 14.2% at the end of 2016, could also keep consumer spending in check.

However, forecasts suggest joblessness has peaked, with the African Development Bank expecting the rate of unemployment to fall to 13.5% in 2018, “as recovery eases production constraints in manufacturing and agriculture”.

Improvements could take time, though, according to the National Bureau of Statistics, which warned in December that employment growth “may lag, and unemployment rates worsen especially at the end of a recession and for many months after”.

Tailoring products to the local market

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 makes its 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 and milk.

Companies are also manufacturing more products and inputs locally in order to reduce import costs, which increased substantially in recent years due to the devaluation 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% since 2015, saw profits increase by more than 36% year-on-year in the first nine months of 2017, 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, managing director of P&G Nigeria, told OBG.