In 2019, overall economic performance in the consumer goods space was a tale of two halves. In the first half, unforeseen election postponement, surging operating expenses and rising competition dragged overall performance during the period. Meanwhile, improvement in the traffic situation at Apapa, low-interest-rate environment and the closure of all land borders (which helped to restrain competition from smuggled goods), boded well for some of the sector players in the second half of the year.
Our overall outlook for the consumer goods sector is mixed due to myriads of macro bottlenecks that ranges from inadequate infrastructure, strained consumer wallet and stiffer competitions. Pressure on volume growth and transport cost is likely to persist as the nation-wide logistics issues are unlikely to go away soon. However, the recent improvements in the traffic situation at the Apapa port, low-interest rate environment, if sustained, are positive for Food manufacturers in the axis as well as others who depend on the importation of their ware (e.g. PZ, BUA, FLOURMIL and DANGFLOUR). Also, all local market participants are expected to see further pressure on input cost as electricity tariffs are expected to be reviewed higher and the likelihood of petroleum sector deregulation, also adds to the worries.
Notably, the possible gains from the full implementation of the new minimum wage are likely to be erased by upward tax reviews and sticky-upward product prices. Amid all the above- highlighted downside risk, we believe much of the growth we are likely to see in 2020 will be driven by higher prices (inflationary), rather than higher consumer demand.