Nigerian retail sector showing resilience

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An expanding middle-income client base and positive consumer sentiment is underpinning the expansion of Nigeria’s retail sector, helping to attract fresh investment from foreign retailers despite forecasts of slower economic growth.

Nigeria’s consumers are amongst the most optimistic in sub-Saharan Africa, according to a recent survey conducted by research and information firm Nielsen Africa, with lower oil prices and the devaluation of the naira seemingly doing little to dent shoppers’s confidence.

To capitalise on the market’s potential, several multinational fast-moving consumer goods manufacturers have recently expanded their operations in Africa’s largest economy, though electricity disruptions and high inflation remain a concern.

Positive outlook

Nigeria ranked at the top of the nine countries surveyed for retail outlook in Nielsen’s initial African Prospects Indicator (APi), also clinching the number-one spot for consumer sentiment.

Published in mid-September, the survey also found that Nigerians were the most willing to try new products, suggesting openings for producers and players eyeing the market.

APi data showed Nigerian consumers were largely optimistic about their personal finances, which is a positive signal for the sector. Furthermore, 43% of retailers reported an increase in spending, suggesting that consumer confidence could be translating into more purchases.

The challenge in Nigeria, Nielsen said, is to continue successfully transforming optimism into spending.

“Sustained success in Nigeria is therefore about efficiently navigating the complex routes to market; pinpointing optimal outlets to generate the greatest return; and working with these retailers to build and activate demand,” Allen Burch, managing director of Nielsen Africa, said at the APi’s launch.

International interest on the rise

With a growing population of 170m and average annual GDP growth projected at 5.4% between 2015 and 2020, as per IMF figures, foreign retailers are increasingly investing in long-term payoffs in the Nigerian market.

This economic growth is translating into higher purchasing power. According to a recent study by consultancy McKinsey, the number of middle-income Nigerian households – those with annual income above $5000 – is expected to increase from 20% of the population to 27% within five years.

Foreign companies are taking note. In mid-September, US cereal giant Kellogg’s announced a joint venture with Singapore’s Tolaram Group to make and market products for the African food and snacks segment, with a focus on the Nigeria consumer market.

Speaking to media in September, Kellogg’s cited “the size of the economy, its growth rate and changing demographics” as the reasons behind the move into Nigeria.

The deal, valued at $450m, will give Kellogg’s access to 450,000 points of sale via Tolaram’s Nigerian distributor, Multipro.

European players

Another global player looking to expand its footprint in the Nigerian market is Dutch-Anglo multinational Unilever. The corporation announced in September that it is seeking regulatory approval to raise its stake in its separately listed subsidiary Unilever Nigeria from 50% to 75%.

In a similar move, UK-based beverages giant Diageo said in mid-September that it intends to lift its equity in local subsidiary Guinness Nigeria from 54.3% to 70% through a share buyback.

The move represents a bid to take advantage of stronger consumer demand, after seeing sales rise 9% in the year ended June 30, according to Peter Ndegwa, managing director of Guinness Nigeria.

Headwinds persist

While the demographics remain promising for retailers, the sector continues to face headwinds, including costly disruptions to power supplies and creeping inflation.

According to recent figures from the World Bank, Nigeria loses around $100bn per year in economic potential due to blackouts, with generated output at less than 10% of that of South Africa, a country with one-third the population of Nigeria.

The industry is also faced with high consumer inflation, which reached 9.4% in September. Imported consumer goods, in particular, have become more expensive on the back of a weaker naira, and higher costs risk dampening consumer sentiment and sales figures.

Foreign currency restrictions imposed by the Central Bank of Nigeria (CBN) on imported products, including some consumer goods, could also lead to shortages in the market, limiting access to raw materials at least in the short term.

In late September the CBN restricted hard currency across 41 import categories, effectively banning the import of some 700 items, according to local press reports.

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