How breweries, cosmetics, food firms defy recession
AS the value of the naira to the dollar is fast depreciating and investors are dumping their shares in quoted companies seeking alternative viable investments for their funds, experts have identified some businesses that thrive when the cost of importation becomes prohibitive.
It was learnt that as the cost of goods and services is rising, many people are beginning to limit what they buy to only food items.
According to the findings, demand for consumer staples has gone up and many of those purchases happen at grocery stores. Therefore, banks and other money lenders who are looking for people to lend money may have to look for notable grocery operators to finance in view of the anticipated rise in their business operations during this period.
The other companies that have been identified to thrive in period like this are beverage-manufacturing firms. Beer, wine and distilled beverages are high- margin products that people want around the world. This may partly account for the resilience in the prices of shares of Nigerian Breweries Plc, which is currently N99.99, Guinness N118, International Brewery, N20, and Seven-Up N170 while the prices of many stocks have gone below N10.
Also experiencing steady patronage this time, are cosmetics, candy and contraceptives manufacturing firms. Cosmetics and nail-care businesses do well during recessions as women look for inexpensive ways to pamper themselves. Also, some men like to look good when they go out or are going to work. A down economy does not change that.
In developed economies, some economists point to rising lipstick sales as a reliable indicator of a sagging economy. Also, couples who want to avoid any unplanned expenses in period of high cost of living go for contraceptives and this makes the sale of the product to go up.
In Nigeria, no company manufactures contraceptives, but Unilever, PZ Industries, Nestle, Cadbury Nigeria Plc, among others that produce cosmetics and allied products are doing fine and their share prices are above average in the equities market.
Other businesses that have been identified to maintain steady patronage in a time like this are death and funeral services outfits. The operators of these businesses provide caskets and funeral-related services.
A visit to casket sellers and undertakers in Lagos, showed that, though people have drastically reduced what they buy now, relatives of dead people task themselves to give their departed ones befitting burials.
Among the businesses that are not adversely affected this period is education. Statistics in the United States show that college enrollment remained steady before, during and immediately after the great recession, making higher education one of the more recession-resistant businesses.
There was a sharp rise in community college admissions during the great recession as laid-off workers returned to school to upgrade their skills.
Other businesses in this category are health care, which has been found to top every list of recession-proof businesses. The logic is that people continue to get sick, even in bad economic times. Analysts believe there is a direct connection between the stagnant overall economy and lower spending on medical services. But the industry still manages to grow during a time when many other sectors see revenues plummet.
For example, total health care spending in the U.S. by both individuals and government programmes like Medicare and Medicaid represented 16.2 per cent of gross domestic product (GDP) in 2007 and increased to 17.6 per cent in 2012, according to World Bank records.
There are other businesses that are classified as noncyclical. These noncyclical businesses survive through good times and bad because they provide basic, necessary services. Under the noncyclical banner are religious organisations, pharmaceuticals, and repair technicians.
So, for the investors looking to put a hedge in their portfolio against a weak economy, these industries can provide some safety.