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Sunday, December 01,
2019 / 11:39AM / by NSE / Header Image Credit: WebTV
Protocol
Nigeria's consumer market is one of the fastest
growing markets in Africa. As far back as 2013, the market was valued at about
$377 billion and is now expected to reach about $454 billion by 2025.
This growth is driven by three major factors -
population, urbanisation and increased spending power. The country's estimated
population of over 200 million, with 72% under the age of 30, presents a huge
potential for future investment in consumption activity.
The manufacturing sector remains a critical segment
and plays an integral role in the development and advancement of the Nigerian
economy. 4With a nominal GDP expansion of about 40% (year-on-year) recorded in
the third quarter of 2019, which is much higher than its performance in
corresponding period of 2018, the manufacturing sector has contributed
significantly to the nation's economic diversification strategy.
According to the National Bureau of Statistics,
manufacturing activity accounted for about 12% of GDP in Q3-2019 compared to
10% of GDP in the same period last year. Of specific mention is the Food,
Beverage and Tobacco subsector which accounts for 41% of overall manufacturing
activity and grew by 2.98% in Q3 2019 versus 1.22% in Q2 2019.
Although these numbers may reflect steady growth in
this sector, the reality and headwinds faced by operators in the sector are
quite daunting.
Over the last few years, Nigeria's economic landscape
has been particularly challenging for the manufacturing sector and particularly
the consumer goods industry. Despite the implementation of different industrial
policies and industrialization strategies like the import substitution policy,
export promotion strategy and foreign private investment led industrialization,
the sector has experienced policy reforms and directives that have negatively
impacted on the performance of the sector's value chain.
The sector has also suffered a declining productivity
rate largely caused by inadequate and epileptic power supply; substandard trade
facilitation infrastructure; high cost of natural gas; multiplicity of
taxes/levies/fees; high excise duties on imported raw materials; congestion at
the Lagos seaports; and most recently the border closure; all of which have
resulted in the reduction in capacity utilization and output of operators in
the sector.
Furthermore, despite
the end of the recession and gradual economic recovery which started in
Q2:2017, the Nigerian consumer market is yet to recover from adjustments in
consumer spending patterns, following the crash in global oil prices in the
second half of 2014 culminating in the 2016 economic recession.
Nigeria's foreign exchange challenges, between 2014
and 2017 which climaxed in the ban of 41 items in 2015 also elevated the
vulnerabilities of the sector. Since then, the Central Bank has raised the
number of items affected on the list to 44, with the inclusion of fertilizer,
textile products and milk. While the introduction of the Investor and
Exporters' (I&E) FX window in April 2017 provided some succour, the
resultant currency depreciation triggered a higher cost of production causing
both margin compression with producers and price increase borne by consumers.
In 2019, the NSE Consumer Goods Index in particular
has recorded a significantly higher negative return of (29.01%) YTD*, compared
to the NSE Industrial Index returning -13.26% and the Main Board Index
returning -22.48%.
It is not all doom and gloom as the industry has
witnessed some progress as well. To address challenges relating to poor
corporate performance, many consumer goods and industrial firms have looked
inwards for local alternatives for raw materials, with specific focus on
backward integration and also exploring different product lines. Although 5imports
still remain the dominant source of inputs into food, beverages and tobacco in
Nigeria, accounting for more than 70% of all raw materials; there have been
several policies to promote backward integration in food processing.
This brings me to policy advocacy and strategy
execution efforts of the Nigerian Stock Exchange, in ensuring positive impact
to the private sector and more importantly our listed companies. The work done
in the area of ease of doing business reforms, which The Exchange has supported
has helped improve the country's rankings in the World Bank Doing Business
report from #169 to the current #131 over the past three to four years. This
progress was due to reforms initiated and implemented by the Nigerian
Government to provide enabling environment for businesses to thrive.
The NSE also continues to engage the Federal
Government on tax incentives for listed companies and exemption relating to
investments in the capital market. We are delighted to note that we have made
some strides in our discussions, some of which are evident in the proposed
amendments to The Finance Bill 2019, which has now been passed by both
Houses of the National Assembly. Some notable points include; tax exemptions on
distributions made by Real Estate Investment Trusts from rental income and also
Securities Lending Transactions in order to promote capital market activities.
We however remain mindful of the legislative process and are optimistic of
future implementations.
The theme of this
conference - "The Role of the Capital Market in Unlocking Value in the
Consumer Goods Sector" - is quite topical for the Country at this time.
As the Government grapples with the task of articulating a clear post-recession
economic blue print for the short to medium-term within which credible fiscal
and monetary policies can emerge, the reality of the need to leverage and
embrace the globalisation of economies and financial markets becomes clearer.
It is my strong belief that one of the things that
Nigeria (and indeed Africa) needs to sustain its growth, is a solid and vibrant
capital market ecosystem that will attract investment and unlock the potential
that exists in the economy. There is also considerable opportunity for the
consumer goods sector to contribute to Nigeria's sustainability agenda by
tapping into the Green and Sustainable Finance Market. This represents a new
stage in development of the Nigerian capital markets and opens the way to
expanded international investments. The NSE is playing a key role to help
develop this enormous opportunity for Nigeria and fulfil one of our key
objectives as a member of the UN Sustainable Stock Exchange Initiative. This is
evident in our recent partnership with the Luxembourg Stock Exchange to
facilitate cross listing of green bonds and provide domestic issuers global
visibility to attract international investors.
Creating and sustaining the growth trajectory of our
markets and the economy at large, requires a strong commitment from each and
every one of us here today. It is not an easy journey, but it is one we have no
choice but to embark upon individually and collectively, in order to develop
and guarantee Nigeria and indeed Africa's competitive advantage in today's
interconnected world. We must use this opportunity to partner with each other,
to enable us further unlock our growth potential and advance the development of
the consumer goods sector and capital markets.
Distinguished ladies and gentlemen, I am confident
that the insightful deliberations at this interactive session will drive the
level of engagement and idea generation that will strengthen Nigeria's real
sector and reinforce the drive of Federal, States and Corporates in accessing
the deep pool of capital inherent in the Nigerian Capital Market. I have no
doubt that we will be better positioned to attract rightsized capital required
to drive the country's much needed economic reforms and sustainable growth.
Let me once again acknowledge our sponsors - Udo,
Udoma and Belo-Osagie; Chapel Hill Denham; Nestle Nigeria PLC; CSCS PLC;
Deloitte; and Cadbury Nigeria PLC - for committing resources to host this
event.
Distinguished ladies and gentlemen thank you for your
attention and anticipated contributions during this conference, I welcome you
all and wish you all fruitful deliberations.
Thank
You.
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