A still bright consumption picture


Tuesday, May 05, 2015 8:55 AM / FBN Capital Research


The state commissioner for waterfront development for Lagos is quoted in the local media as saying that the first set of office buildings in the Eko Atlantic City will be ready for occupation in 2016. In a different market niche, the state government is working jointly with the private sector in real estate development projects such as Orange Island. Construction is one of the fastest growing sectors of the economy, growing by 11.3% y/y in Q3 2014 and 12.7% in Q4. Outside the subsistence segment, it is driven by real or perceived consumption demand.


This demand is often described as the emergence of the middle class. Not being sociologists, we do not have our own threshold. One of our competitors has produced a survey covering 13 countries in sub-Saharan Africa and with a floor of US$20,000 per household per year.

The rapid urbanization in Nigeria fuels consumption demand. The search for jobs largely explains the rural-urban drift, a trend which could become stronger still now that the executive of the federal government and of 22 states (including Lagos) will belong to the same political coalition.

We also see healthy consumption demand in our own manufacturing PMI. The headline reading since our launch in April 2013 has averaged 55.8, and stood at 54.0 last month. For arguably the most forward-looking of the five sub-indices (new orders), the average has been 58.6. The respondents for our reports are a representative blend of large, medium-sized and small firms.

This picture of consumption demand is not consistent with the results of most listed companies in the manufacturing sector over more than two years.  Nestle provided the latest negative results last week. According to the common narrative, the fuel subsidy hike of January 2012, the insecurity in the north east and, since Q3 2014, the imported macro headwinds have combined to squeeze demand.

We reconcile these results with our picture by noting that listed manufacturing firms account for less that 5% of sectoral output. We also note that the food, beverages and tobacco segment, in which many of them operate, expanded by 5.2% y/y in Q4 2014, compared with 13.5% for the sector as a whole. That said, we think that the national accounts for Q1 2015, due later this month, will show weaker GDP and manufacturing growth under demand pressures attributable to the same headwinds.


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