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NSE CEO Opening Remarks At The CEO Interactive Session For The Consumer Goods Sector

Capital Market	2015 VIEWS
Capital Market
2015 VIEWS

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Sunday, December 01, 2019 / 11:39AM / by NSE / Header Image Credit: WebTV

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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.