…bursts 200m consumer market bubble
A new study on the consumption pattern of Nigerian households which tells an old story of deep-seated poverty and living on the tethers of squalor suggests the country’s “large domestic market” is big for nothing.
Nigeria is Africa’s biggest economy with a population of 200 million.
But Nigerians have low discretionary income – income left after settling basic necessities such as food, shelter and clothing – according to SBM Intel, a leading geopolitical intelligence platform in Nigeria. In other words, there is next to nothing left for saving, investing or spending on non-essentials needs.
The amount left over after Nigerians meet their essential needs contradicts talk of a big local market, SBM Intel said in its report.
The country’s true market size is “really the number of people who are able to spend discretionarily once they get past spending on the essential commodities”, and that number, SBM Intel estimates, is under 37 percent of the population.
In its estimation of the market size, however, an exception is made for producers of essential commodities in Nigeria who would have a market in providing basic needs.
In the report by SBM Intel, 63 percent of respondents said after spending on food, they had nothing left to spend. About 71 percent of households sampled earned between N30,000 and N120,000 every month.
The report gives flesh to an already known fact that Nigeria is now the poverty capital of the world with about five people falling into the poverty trap every minute adding to the existing 94 million people, according to World Poverty Clock.
Survival is essential in Nigeria and most of the population is at the base of Abraham Maslow’s pyramid of the hierarchy of needs.
“I just wake up and pray to God to provide for my family today. Tomorrow would take care of itself,” said Emmanuel Alabi, 42, a private school teacher in Lagos and a father of four.
Nigeria is slowly recovering from a recession that saw negative growth in the economy for four consecutive quarters in 2016 and shrunk household incomes. Companies in the consumer goods sector were hard hit. Value, that is, cheaper alternatives, thus became a dominant determinant of most consumers’ buying decision as they sought to do more with less.
The woes of FMCGs listed on the Nigerian Stock Exchange best illustrate consumers’ flight to value, Coronation Merchant Bank asserted in a recent report.
Other than Nestle, consumer goods firms are struggling to grow sales as consumers who otherwise patronised their brands shifted to brands of unlisted companies because of their lower prices.
High prices keep consumers spending more on food commodities which reduces their discretionary income, SBM Intel argued.
The severest implication of a low discretionary spending for Nigeria, which Moody’s says is trapped in “a low growth cycle”, would be the continuation of a vicious cycle of poverty and weak economic growth.
Low income leads to low savings which, in turn, results in low investment. The result of a low capital formation is low productivity and then low income. The cycle continues.
Nigeria’s gross national savings (the total amount a country saves) fell from 23 percent in 2009 to 11.8 percent in 2018, below peer emerging markets – South Africa (20 percent), Brazil (16 percent) and India (30 percent).
“You cannot expect a high savings rate in a high poverty and unemployment environment,” said Ayo Teriba, CEO, Economic Associates, a consultancy.
To stem the tide, SBM Intel said one of two most important policy thrusts that the government must make central to its policy planning is to reduce the cost of food in order to free up more discretionary income. The other is increasing productivity and therefore the income of Nigerians relative to the cost of the bare essentials.
The advisory firm also highlighted the importance of access to credit “in order to cater to bulk expenses like rent and school fees, as well as increase the discretionary income pool”.
“Without an increase in discretionary income, savings are unlikely to increase and therefore investible funds within the economy will remain relatively low,” it said.
When discretionary income improves, SBM reckoned, Nigerians will be able to afford more products giving room for new businesses to flourish.