How consumer spending will shape real sector growth, economy
To predict consumer spending, key variables like income, unemployment level, interest rates, inflation, credit availability, demand for products and services, lifestyle and attitudes are examined with a view to aligning expectations and pace of growth in key sectors of the economy. With sentiments reflecting uncertainty alongside slow-paced economic growth, consumer spending may remain flat in line with the present economic realities. FEMI ADEKOYA writes.
Though consumers’ overall confidence outlook improved in Q4 2018 and for the 2019 fiscal year according to the Central Bank of Nigeria’s expectations survey, there are concerns about the pace of spending how macro-economic influences might affect chances of consumers spending more this year as against 2018.
For instance, while many of the respondents expect prices of goods and services to rise in the next 12 months, with an index of 13.3 points, driven by rent, food and other household needs, telecommunication, electricity, debt payment and purchase of house, the buying intention indices for consumer durables, motor vehicles and house & lot were below 50 points, indicating that respondents have no plans to make these purchases in the next twelve months.
Indeed, the outcome of the survey shows that many consumers are battling with meeting the basic needs as available income might not be sufficient to satisfy certain wants that may arise during the year.
Already, some firms in the consumer goods industry have lowered expectations for the 2019 financial year, citing challenges in different markets, particularly in Nigeria where people’s disposable income is lowered due to the upcoming general election in the country.
A review of some of the fundamental indices that influence consumer spending showed that the country’s unemployment rate worsened in the third quarter of 2018 (Q3, 2018), rising from 18.8 per cent in Q3 2017 to 23.1 per cent in the third quarter of 2018, according to the labour report by the National Bureau of Statistics (NBS), minimum wage still low, average lending rate spiked to 25 per cent, inflation on the uptick at 11.28% among other concerns.
Inflation and rising unemployment
With many Nigerians in the unemployed and under-employed gap, hopes of increasing consumer spending is grim as most respondents in the CBN survey expected that the naira will appreciate, inflation rate will rise, and borrowing rate will rise in the next 12 months.
Already, food inflation continues to rise despite harvest in the third quarter as the composite food index rose 13.30 percent in November 2018 compared to 13.28 percent in October 2018.This rise in the food index according to NBS, was caused by increases in prices of Bread and cereals, Milk, cheese and egg, Fish, Vegetables, Fruits, Oil and fats, Potatoes, yams and other tubers. On month-on-month basis, the food sub-index increased by 0.90 percent in November 2018, up by 0.08 percent from 0.82 percent recorded in October 2018.
Beyond food, increases were recorded in prices of major household appliances, fuels and lubricants for personal transport equipment, Repair of household appliances, Dental services, and household services, Medical services, Hospital services, Vehicle spare parts, Shoes and other footwear, and cleaning, repair and hire of clothing.
A rise in unemployment, the NBS said, generally means that the number of people searching for jobs has increased, “which can occur because people previously outside the labour force – students and housewives, have decided to join the labour force and are now in search of jobs, or people previously working have lost their jobs and are now in search of jobs. Often, it is a combination of these two.”
The NBS, however, explained: “Of the 20.9 million persons classified as unemployed as at Q3 2018, 11.1 million did some form of work but for too few hours a week (under 20 hours) to be officially classified as employed while 9.7 million did absolutely nothing.“Of the 9.7 million unemployed that did absolutely nothing as at Q3 2018, 90.1 per cent of them or 8.77 million were reported to be unemployed and doing nothing because they were first time job seekers and have never worked before.
“On the other hand, 9.9 million or 0.9 per cent of the 9.7 million that were unemployed and doing nothing at all reported they were unemployed and did nothing at all because they were previously employed but lost their jobs at some point in the past which is why they were unemployed,” the report said.
According to the NBS: “Of the 9.7 million that were unemployed and did nothing at all; 35.0 per cent or 3.4 million have been unemployed and did nothing at all for less than a year; 17.2 per cent or 1.6 million for a year, 15.7 per cent or 1.5 million had been unemployed and did nothing for two years, and the remaining 32.1 per cent or 3.1 million unemployed persons had been unemployed doing nothing for three and above years.”
Low demand, competition and local capacity output
Reviewing activities in the real sector, the Manufacturers Association of Nigeria (MAN) attributed the poor performance of the sector to high cost of doing business, sluggishness in manufacturing activities to the heaps of unsold inventory mainly resulting from the delay in implementation of the budget and dwindling purchasing power of the average consumer.
While many of the innovations by the top FMCG companies appear to be losing appeal from consumers, newer entrants continue to challenge the market by appealing to the cost sentiments of many consumers who cannot afford to pay more at the moment.For instance, one of the major challenges facing big players in the consumer goods sector, particularly diapers and sanitary towel is a stiff competition in the market.
There are currently more than a dozen brands of diapers and sanitary pads in the country, including Pampers, Molfix, Always, Nice Baby, Angel, Dry Love, Huggies, among others.With inflation at over 11.28% and the purchasing power parity of Nigerians has continued to reduce necessitating a review for an improved minimum wage as well as an improved business environment.
For experts at Cordros Securities, there is need for sustained action by managers of the economy in terms of policy implementation.“In our H2-2018 outlook report, we explored the key drivers of growth, taking cognizance of the peculiarity of the Nigerian economy vis-a-vis the impact of political risk, structural reforms, and the second-order impact of crude oil prices and production on the overall growth.
“In so doing, we modelled our base case scenario for FY-2018 GDP growth at 2.63% y/y, anchored on the fact that businesses will remain uncompetitive due to the absence of meaningful reforms, household consumption will be constrained as consumer wallets remained pressured, and positive policy implementation to drive sturdy non-oil GDP growth is lacking”, the experts added.
To MAN, increasing demand for local products will mean the government creating a sustainable platform through which the public will be continuously educated on the need to jettison the current penchant for foreign goods and patronize locally manufactured products.Similarly, distractions from political activities may slow down infrastructure spending and the performance of the manufacturing sector being a sector whose operations relies heavily on these infrastructures for optimal production and distribution.
Can consumer spending keep pace with a slow-paced economy?
With key indices maintaining a slow-paced movement despite optimistic outlook expressed by consumers, spending is not likely to improve or move to a high altitude except jobs are created and sectors fuelling such spending equally witness a turnaround. It is unlikely that consumers will continue to grow their spending so much faster than their incomes are rising.
No comments yet